Question 1

The total product curve may initially show output increasing at an increasing rate as more labour is hired because of the:
A)declining quality of the labor force.
B)principle of comparative advantage.
C)law of diminishing marginal returns.
D)increase in marginal physical product.

Accepted Answer

The total product curve initially shows output increasing at an increasing rate due to the increase in marginal physical product. This occurs when additional units of labor contribute more to output than the previous units, often due to factors like improved efficiency or better utilization of fixed resources.

Question 2

If labour is the only variable resource and its marginal physical product falls as more workers are hired:
A)the law of diminishing marginal returns is at work.
B)marginal cost is rising.
C)average cost may still be declining.
D)average physical product may still be rising.

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, the additional output produced by each additional unit of the variable input eventually decreases.

Question 3

When both average and total product are greater than zero, and marginal product equals average product, then total product:
A)is at a maximum.
B)is positive and rising.
C)is falling.
D)is negative but rising.

Accepted Answer

When marginal product equals average product and both are greater than zero, it indicates that total product is increasing at that point. This is because the marginal product (the addition to total output from one more unit of input) is still adding positively to the total product, and it's at a point where it's increasing the average product, not decreasing it.

Question 4

Costs incurred only when production occurs are known as:
A)explicit costs.
B)fixed costs.
C)variable costs.
D)technological expenses.

Accepted Answer

Variable costs vary with the level of production output and are incurred as a direct result of producing goods or services. Examples include raw materials and direct labor costs. Fixed costs, on the other hand, do not change with the level of production (e.g., rent, salaries of permanent staff). Explicit costs are direct payments made to others in the course of running a business, not specifically tied to production volume. Technological expenses could be either fixed or variable but are not specifically defined by their occurrence only when production occurs.

Question 5

The law of diminishing marginal returns is encountered as increasing amounts of labour are hired because:
A)as production rises, the additional labor hired is less and less skilled.
B)experienced workers are hired before the less skilled.
C)each extra worker hired decreases the amounts of land and capital per worker, so the work place becomes more congested and managerial control becomes more difficult.
D)as more and more is produced, selling it requires cutting prices.

Accepted Answer

The law of diminishing marginal returns suggests that as more units of a variable input (like labor) are added to fixed inputs (like land and capital), the additional output from each new unit of input will eventually decrease. This is not because new workers are less skilled (A and B) or because of pricing strategies (D), but because adding more workers to a fixed amount of space and machinery leads to congestion and inefficiencies, making each additional worker less productive than the last.

Question 6

Which of the following is irrelevant for rational decision making?
A)total variable cost (tvc)
B)explicit cost.
C)average fixed cost (afc).
D)marginal cost (mc).

Accepted Answer

The answer of Which of the following is irrelevant for...

Question 7

Diminishing marginal returns are most compatible with:
A)economies of scale.
B)advantages from specialization.
C)positively-sloped marginal cost curves
D)depreciation of the capital stock.

Accepted Answer

The answer of Diminishing marginal returns are most compatible with:
A)economies...

Question 8

If average variable costs fall as output grows:
A)marginal costs must also be declining.
B)fixed cost must also be declining.
C)total cost must also be declining.
D)average cost must be below average variable cost.

Accepted Answer

The answer of If average variable costs fall as output...

Question 9

In economic theory the costs of a firm
A)tend to be less than the everyday use of the term costs would suggest
B)includes implicit as well as explicit outlays
C)always decline as more output is produced
D)are usually defined in such a way that profits will be larger than the

Accepted Answer

In economic theory, the costs of a firm include both implicit and explicit costs. Implicit costs are the opportunity costs of using resources that the firm already owns, while explicit costs are the direct, out-of-pocket expenses. This comprehensive approach ensures that all relevant costs are considered when analyzing a firm's financial situation.

Question 10

The average total costs of the firm as defined in standard economic theory
A)are the sum of the fixed and any variable costs divided by the number of units of labour input
B)are the sum of the fixed and any variable costs
C)are the sum of the average fixed and the total variable costs
D)are the sum of the fixed and variable costs divided by the number of units of output

Accepted Answer

Average total costs in standard economic theory are calculated by dividing the sum of fixed and variable costs by the number of units of output produced. This gives the cost per unit of output.

Question 11

The short run as the term is used in connection with the theory of the firm is a period of time:
A)too short for the firm to vary all its inputs
B)no more than a week
C)long enough for the firm to vary the quantity of all its inputs
D)in which the fixed costs are zero

Accepted Answer

In the short run, a firm can vary some but not all of its inputs. Fixed inputs (like buildings and machinery) cannot be changed, while variable inputs (like labor and raw materials) can be adjusted. Choices B, C, and D do not accurately describe the concept of the short run in economic theory.

Question 12

According to the principle of diminishing marginal physical productivity, in the short run
A)as output increases, costs per unit of output must eventually decline
B)marginal product will decrease continually as output is expanded
C)as output is increased, the quantity of inputs needed to produce additional units of output will increase, causing costs per unit of output to increase
D)total output will become negative once marginal product begins to decline

Accepted Answer

The principle of diminishing marginal physical productivity states that as more units of a variable input (like labor) are added to fixed inputs (like capital), the additional output produced by each new unit of input will eventually decrease. This implies that to produce additional units of output, more input will be required, leading to an increase in the cost per unit of output as production expands.

Question 13

Economies of scale
A)set in as soon as diminishing marginal physical productivity is experienced
B)are usually considered to be a phenomenon of the long run
C)are not always available in the short run
D)help ensure that industries will be competitive rather than monopolized

Accepted Answer

Economies of scale are typically associated with the long run because they involve changes in the scale of production that cannot be achieved in the short run, such as building new facilities or investing in more efficient technology.

Question 14

Marginal costs and average variable costs are equal when
A)average variable cost is a maximum
B)average variable cost is rising
C)average variable cost is falling
D)average variable cost is a minimum

Accepted Answer

Marginal cost equals average variable cost at the minimum point of the average variable cost curve. This is because when marginal cost is less than average variable cost, it pulls the average down, and when it is more, it pushes the average up. Thus, they are equal at the AVC's minimum point.

Question 15

Theory of demand examines the behaviour of the--------
A)Consumer
B)Producer
C)Firm
D)Industry

Accepted Answer

The theory of demand primarily focuses on the behavior of consumers, analyzing how they decide to spend their money based on their preferences, incomes, and the prices of goods and services.

Question 16

Utility is the concept which is:
A)Objective
B)Subjective
C)Both
D)None

Accepted Answer

Utility is subjective because it varies from person to person based on their preferences, tastes, and circumstances.

Question 17

Change in utility resulting from one unit change in consumption is called:
A)Total Utility
B)Extra Utility
C)Marginal Utility
D)Average Utility

Accepted Answer

Marginal Utility is the change in utility resulting from a one-unit change in consumption of a good or service.

Question 18

Saturation point is the point where:
A)TU = 0
B)MU = 0
C)MU is +ve
D)TU = 1

Accepted Answer

Saturation point is the point at which adding more of a substance or factor no longer increases the utility or satisfaction derived from it, hence the Marginal Utility (MU) becomes zero.

Quiz 4: Production, Costs, and Demand Analysis

The total product curve may initially show output increasing at an increasing rate as more labour is hired because of the:

If labour is the only variable resource and its marginal physical product falls as more workers are hired:

When both average and total product are greater than zero, and marginal product equals average product, then total product:

Costs incurred only when production occurs are known as:

The law of diminishing marginal returns is encountered as increasing amounts of labour are hired because:

Which of the following is irrelevant for rational decision making?

Diminishing marginal returns are most compatible with:

If average variable costs fall as output grows:

In economic theory the costs of a firm

The average total costs of the firm as defined in standard economic theory

The short run as the term is used in connection with the theory of the firm is a period of time:

According to the principle of diminishing marginal physical productivity, in the short run

Economies of scale

Marginal costs and average variable costs are equal when

Theory of demand examines the behaviour of the--------

Utility is the concept which is:

Change in utility resulting from one unit change in consumption is called:

Saturation point is the point where: