Question 1

Exhibit 6-1 Production of pizza data $$\begin{array} { | c | c | } 
\hline \text { Workers } & \text { Pizzas } \
\hline 0 & 0 \
1 & 4 \
2 & 10 \
3 & 15 \
4 & 18 \
5 & 19 \
\hline
\end{array}$$ Exhibit 6-1 shows the change in the short-run production of pizzas as more workers are hired. The table shows the marginal product of the labor input is decreasing with the hiring of the third worker. A possible reason for this diminishing marginal product is:

Accepted Answer

The diminishing marginal product, as seen with the hiring of the third worker and beyond, indicates that each additional worker contributes less to the total output than the previous one, which is a sign of decreasing labor productivity. This can happen when the fixed amount of capital (ovens, space, etc.) becomes insufficient for the additional workers to use efficiently.

Question 2

Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crops twice during the growing season and notices that the second layer of fertilizer increases his crop, but not as much as the first layer. What economic concept best explains this observation?

Accepted Answer

The observation that the second layer of fertilizer increases the crop, but not as much as the first layer, is best explained by the law of diminishing returns. This economic principle states that as a firm uses more and more of a variable input (in this case, fertilizer), while keeping all other inputs constant, the marginal product of that input will eventually decrease. In other words, there comes a point where adding more fertilizer will not result in a proportionate increase in crop yield.

Question 3

During the short-run period of the production process, a firm will be:

Accepted Answer

During the short-run period, a firm is able to vary some of its factors of production, such as labor and raw materials, but not all of them, such as its capital stock or plant size. This is because some inputs are more flexible than others in the short-run.

Question 4

As a fishing firm hires its first, second, and third workers, it could find that marginal product actually rises. The reason for this is:

Accepted Answer

The division of labor, where each worker specializes in a specific task, can lead to greater productivity as each worker becomes more efficient in their specific role. This increase in productivity can lead to an increase in the marginal product of labor.

Question 5

The law of diminishing marginal returns implies that, in the short run:

Accepted Answer

The law of diminishing marginal returns states that as more units of a variable input (like labor) are added to a fixed input (like capital), the marginal product of the variable input will eventually decrease. This means that each additional unit of the variable input will yield less additional output than the unit before it, eventually leading to diminishing returns. This is applicable only in the short run.

Question 6

Suppose when a car wash has 2 washing stations and 5 workers and is able to wash 100 cars per day. When it adds a third station, but no more workers, it is able to wash 150 cars per day. The marginal product of the third washing station is:

Accepted Answer

The marginal product of the third washing station is the additional output it produces, which is 150 cars per day minus the original 100 cars per day, equaling 50 cars per day.

Question 7

Exhibit 6-1 Production of pizza data $$\begin{array} { | c | c | } 
\hline \text { Workers } & \text { Pizzas } \
\hline 0 & 0 \
1 & 4 \
2 & 10 \
3 & 15 \
4 & 18 \
5 & 19 \
\hline
\end{array}$$ Exhibit 6-1 shows the change in the production of pizzas as more workers are hired. The marginal product of the second employee equals:

Accepted Answer

The marginal product of the second employee is calculated by subtracting the total product (pizzas) made by one worker from the total product made by two workers, which is $10 - 4 = 6$.

Question 8

The long run is a period of:

Accepted Answer

The long run is defined as a period of sufficient length to allow a firm to alter its plant size and capacity and all other factors of production. This is typically longer than one year, and allows the firm to make more substantial changes to its production process than simply hiring additional workers or improving their productivity. The long run is important for firms that need to make significant investments in capital equipment, or that want to change their product lines or production processes in order to become more efficient or profitable.

Question 9

The short run is a period of time:

Accepted Answer

In the short run, at least one input is fixed, meaning that the firm cannot adjust that input in the short run. This could be the firm's plant size, which cannot be changed quickly, but it could also be other inputs such as the amount of capital or land the firm has. The length of time in the short run is not defined by a specific time period such as one year or six months, but rather by the fixed inputs.

Question 10

Exhibit 6-3 A marginal product curve

As shown in Exhibit 6-3, the law of diminishing returns applies where there are:

Accepted Answer

The answer of Exhibit 6-3 A marginal product curve

As shown...

Question 11

A farm is able to produce 5,000 bushels of peaches per season on 100 acres. Assume it adds one more acre and is able to produce 6,000 bushels per season. The marginal product of the additional acre of land for this farm is:

Accepted Answer

The marginal product of the additional acre of land can be calculated by finding the difference in total output before and after adding the acre of land:

Marginal product = (new total output - old total output) / (new acres - old acres) 
= (6,000 - 5,000) / (101 - 100) 
= 1,000 bushels/acre/year

Therefore, the answer is C.

Question 12

Exhibit 6-2 Cost schedule for pizza production $$\begin{array} { | c | c | c | c | } 
\hline \text { Pizzas } & \begin{array} { c } 
\text { Labor } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Energy } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Materials } \
\text { Cost }
\end{array} \
\hline 0 & \$ 10 & \$ 0 & \$ 0 \
1 & 10 & 12 & 4 \
2 & 24 & 22 & 8 \
3 & 40 & 30 & 12 \
4 & 60 & 36 & 16 \
5 & 90 & 40 & 20 \
\hline
\end{array}$$ Exhibit 6-2 shows the labor, energy, and materials cost of making various quantities of pizzas. The table shows that the labor cost of making pizzas will:

Accepted Answer

The labor cost increases as more pizzas are made, and the increase in cost accelerates as the quantity of pizzas increases, indicating an increasing rate of increase.

Question 13

The long run is a planning period:

Accepted Answer

The long run is a planning period during which the firm can vary all inputs, including its plant size. This means that in the long run, a firm can make any adjustments necessary to achieve its goals, including changing the size of its physical plant. The other choices are incorrect as they imply that the long run is a shorter planning period.

Question 14

Which of the following best describes a production function?

Accepted Answer

A production function illustrates the relationship between the inputs (such as labor, capital, and raw materials) used by a firm and the maximum amount of output that can be produced using those inputs.

Question 15

If two workers can produce 22 units of output, and the addition of a third worker increases output to 30 units, the marginal product of the third worker is:

Accepted Answer

The marginal product of the third worker is the additional output produced by adding the third worker, which is calculated by subtracting the total output with two workers (22 units) from the total output with three workers (30 units), resulting in 8 units.

Question 16

Exhibit 6-1 Production of pizza data $$\begin{array} { | c | c | } 
\hline \text { Workers } & \text { Pizzas } \
\hline 0 & 0 \
1 & 4 \
2 & 10 \
3 & 15 \
4 & 18 \
5 & 19 \
\hline
\end{array}$$ Exhibit 6-1 shows the change in the production of pizzas as more workers are hired. The marginal product of the labor input begins to fall with the employment of the

Accepted Answer

The marginal product of labor is the additional output produced by an additional unit of labor. It begins to fall when the increase in output starts to decrease with each additional worker. From the table, the increase in pizzas from 1 to 2 workers is 6 (10-4), from 2 to 3 workers is 5 (15-10), indicating the marginal product begins to fall with the employment of the third worker.

Question 17

Marginal product measures the change in:

Accepted Answer

Marginal product measures the change in output brought about by employing one additional unit of input, holding all other inputs constant. It helps determine the optimal level of input to use in production.

Question 18

Which of the following factors of production is not variable in the long run?

Accepted Answer

In the long run, all factors of production are considered variable because firms have enough time to adjust all inputs, including the size of the plant, labor, and capital. This contrasts with the short run, where at least one factor of production is fixed.

Question 19

For the law of diminishing returns to be present, we must have:

Accepted Answer

The law of diminishing returns is based on the premise that as more and more of a variable factor of production, such as labor, is added to a fixed factor of production, such as capital or land, the marginal product of the variable factor will eventually start to decrease. Therefore, there must be at least one factor of production that is fixed for the law of diminishing returns to be present. The other options (B, C, and D) are not necessary conditions for the law of diminishing returns to hold.

Question 20

During the course of a week, McDonald's has enough time to hire or layoff workers, but it does not have enough time to expand its kitchen or add an additional seating area. In this situation, McDonald's:

Accepted Answer

The fact that McDonald's can make changes to their labor force but not their physical infrastructure indicates that they are operating in the short run. In the short run, some factors of production are fixed (such as the physical space and equipment), while others are variable (such as labor). The inability to expand the kitchen or seating area means that they have fixed costs, and whether they are earning a profit or suffering a loss depends on their overall revenue and variable costs.

Quiz 6: Production Costs