Question 1

The nineteenth-century British economist Thomas Malthus argued that the law of diminishing returns implied that
A)Capital would increase relative to labor
B)Technological change would grow at an increasing pace
C)Eventual misery would befall the human race
D)Raw materials would eventually run out

Accepted Answer

Thomas Malthus argued that eventually, the law of diminishing returns would lead to a population growth that would surpass the production of resources necessary to sustain it. This would result in widespread poverty and misery for the human race. Therefore, Malthus believed that population growth should be controlled to avoid this outcome, as technological change and increases in capital or raw materials would not be able to keep up with the exponential growth of the population.

Question 2

In a short-run production function before diminishing returns set in, A)Both MP_Land AP_Lwill have positive slopes and MP_Lwill lie above AP_L B)Both MP_Land AP_Lwill have positive slopes and AP_Lwill lie above MP_L C)Both MP_Land AP_Lwill have negative slopes and MP_Lwill lie above AP_L D)Both MP_Land AP_Lwill have negative slopes and AP_Lwill lie above MP_L

Accepted Answer

Before diminishing returns set in, both MP_L and AP_L will have positive slopes. MP_L will lie above AP_L because the addition of each unit of labor increases total output by more than the average output per worker.

Question 3

In a value added production function like the one used in the text, raw materials are
A)Counted as inputs in a production process
B)Called intermediate goods
C)Are counted in the final product of any production process as part of the value of output
D)Called final goods

Accepted Answer

B

Question 4

If equal amounts of a variable input are sequentially added to the fixed input in a typical production function,
A)The increments to output will decrease first and then increase
B)The additions to output will be constant
C)Increments to output will increase indefinitely
D)Increments to output will first increase at an increasing rate and then at a decreasing rate

Accepted Answer

This is known as the law of diminishing marginal returns, which states that as additional units of a variable input (such as labor) are added to a fixed input (such as capital), the increase in output initially increases at an increasing rate (due to specialization and division of labor), then increases at a decreasing rate (due to diminishing marginal returns), and eventually starts to decrease (due to negative marginal returns).

Question 5

The marginal product of a variable input is
A)Zero at the point of diminishing returns
B)The change in the average product that occurs when the variable input is increased one unit
C)The change in the total product that occurs in response to a unit change in the variable input
D)The second derivative of the total product function

Accepted Answer

The marginal product of a variable input is defined as the change in the total product that occurs in response to a unit change in the variable input. It measures the additional output produced by the last unit of input used. At the point of diminishing returns, the marginal product starts to decrease, but it is not necessarily zero. Therefore, option A is incorrect. Option B is incorrect because the marginal product is not related to the average product. Option D is incorrect because the second derivative of the total product function is the rate of change of the marginal product, not the marginal product itself.

Question 6

Geometrically, the average product
A)Is the slope of the line joining the origin to the specified point on the total product curve
B)At any point is the slope of the total product curve at that point
C)Is that point at which the total product curve exhibits diminishing returns
D)Falls at low levels of input use and rises at high levels of input use

Accepted Answer

The average product is calculated as the total product divided by the quantity of input, which geometrically is represented by the slope of the line from the origin to a point on the total product curve.

Question 7

If capital and labor are perfect substitutes in a production function, the isoquants for this function will be
A)Concave from above
B)Convex from above
C)A straight line
D)Any one of the above depending on the particular combination of labor and capital employed

Accepted Answer

If capital and labor are perfect substitutes in a production function, it means that one unit of capital can replace one unit of labor without affecting the total output. Therefore, the isoquants will be linear, and any combination of capital and labor that gives the same output will lie on a straight line. Thus, the correct answer is C, i.e., the isoquants will be a straight line.

Question 8

In a typical short-run production function, before diminishing returns set in,
A)The slope of the total product curve is decreasing
B)The slope of the total product curve is increasing
C)The slope of the total product curve rises and then falls before diminishing returns sets in
D)The slope of the total product curve falls and then rises before diminishing returns sets in

Accepted Answer

Before diminishing returns set in, the slope of the total product curve is increasing. This is because as more units of variable input (e.g. labor) are added to the fixed input (e.g. capital), the marginal product of the variable input increases. This leads to a steeper slope of the total product curve. Only after a certain point (when the marginal product of the variable input starts decreasing) does diminishing returns set in and the slope of the total product curve starts decreasing.

Question 9

The law of diminishing returns to an input says that if other inputs are fixed
A)output eventually will decrease with increases of the variable input
B)change in output will eventually decrease with increases in the variable input
C)revenue will eventually decrease with increases in the variable input.
D)the variable input will eventually decrease with more output

Accepted Answer

The law of diminishing returns states that if other inputs are fixed, then increasing the input of one particular factor will eventually lead to a decrease in the marginal output produced by that additional input. In other words, at some point, the increase in output will begin to diminish with each successive increase in the variable input. Therefore, choice B is the correct answer.

Question 10

The short run is defined as that period of time during which
A)One or more inputs cannot be freely varied
B)All inputs are variable
C)All inputs are fixed
D)Labor is counted as a fixed input

Accepted Answer

In the short run, at least one input is typically fixed, and cannot be easily or quickly altered. This is what distinguishes it from the long run, when all inputs are variable. Therefore, choice A accurately defines the short run.

Question 11

Which is true?
A)Production functions consider only the value added part of a particular production process
B)Production functions are as subjective as utility functions
C)Production functions count raw materials, but not labor, as inputs into the production process
D)Production functions do not count technology into the production process

Accepted Answer

Production functions typically focus on the value added by a particular production process, meaning they consider the final output produced minus the inputs used to produce it. This allows them to assess the efficiency of the production process and make comparisons across different processes. While labor and raw materials are often inputs in production functions, technology and other factors can also be included. However, production functions are generally seen as more objective than utility functions because they rely on measurable inputs and outputs rather than individual preferences.

Question 12

If a chef and her equipment transform $50 worth of raw foodstuff into a meal with a total value of $150,
A)The resulting output would be measured as the $150 total value
B)The resulting output would be referred to as an intermediate product
C)The resulting output would be measured as the $100 of value added
D)The resulting output would be measured as $200 of value added

Accepted Answer

The resulting output (meal) has a total value of $150, but $50 worth of raw foodstuff was transformed into it. Therefore, the value added by the chef and her equipment would be $100. This value added would be the output that the chef can take credit for transforming the input materials into. It is not an intermediate product (a partially completed product that will undergo further processing).

Question 13

Diminishing returns begin to occur
A)When the slope of the ray from the origin reaches a maximum
B)When the total product curve reaches a maximum
C)When the slope of the total product curve reaches a maximum
D)When the marginal product curve intersects the average product curve

Accepted Answer

Diminishing returns begin when the slope of the total product curve, which represents the marginal product, reaches a maximum and starts to decline.

Question 14

In a typical production function the relevant factors of production are land, labor, capital, and
A)Raw materials
B)Technology
C)Entrepreneurship
D)Resources

Accepted Answer

While all of the options listed are important in the production process, entrepreneurship is the factor that brings together the other factors and takes on the risk of creating a product or service. Entrepreneurship involves identifying opportunities, arranging for the necessary resources, and making decisions about production processes, marketing, and distribution. Therefore, the relevant factors of production in a typical production function are land, labor, capital, and entrepreneurship.

Question 15

A fixed input is an input that
A)can never be varied
B)can not be varied in the short-run
C)is fixed only for some quantities of output
D)can never be moved from one location to the next

Accepted Answer

A fixed input is an input that cannot be varied in the short-run. However, in the long-run, all inputs are variable.

Question 16

In the long run
A)All inputs are fixed
B)Only capital inputs are fixed
C)All intermediate goods are fixed
D)All inputs are variable

Accepted Answer

In the long run, all inputs are variable, meaning firms can adjust all factors of production, including labor, capital, and other resources, to achieve optimal production levels.

Question 17

When the marginal product curve lies above the average product curve
A)The average product curve must be falling
B)The total product curve must be falling
C)The average product curve must be rising
D)The marginal product curve must be rising

Accepted Answer

When the marginal product curve lies above the average product curve, the average product curve must be rising. This is because the marginal product curve shows the additional product produced by each additional unit of input, while the average product curve shows the average product per unit of input. If the marginal product is higher than the average product, it means that each additional unit of input is adding more than the average amount of product. As a result, the average product curve will be rising.

Question 18

The average product of a variable input
A)Decreases at an increasing rate
B)Constantly rises over the relevant range of production
C)Is the change in the total product that occurs when the variable input increases one unit
D)Is defined as the total product divided by the quantity of the variable input

Accepted Answer

The average product of a variable input is calculated by dividing the total product by the quantity of the variable input.

Question 19

Geometrically, the marginal product
A)Is the slope of the line joining the origin to the corresponding point on the total product curve
B)At any point is the slope of the total product curve at that point
C)Is that point at which the total product curve exhibits diminishing returns
D)Is the slope of the average product curve

Accepted Answer

The marginal product is the derivative of the total product curve, representing the slope at any given point.

Question 20

When Thomas Malthus argued that the prospects for human flourishing were gloomy and that starvation would eventually become the normal human condition he was assuming that
A)Diseconomies of scale will become more commonplace
B)Diminishing returns to production will become more apparent
C)Epidemics will overpower the many technological advances that he expected
D)Self interest will become more intense and religion will cease to be an influential force in society

Accepted Answer

Malthus believed that population growth would eventually outstrip the ability to produce food, resulting in diminishing returns to production. He did not focus on diseconomies of scale, epidemics, or changes in self-interest or religion.

Quiz 9: Production

The nineteenth-century British economist Thomas Malthus argued that the law of diminishing returns implied that

In a short-run production function before diminishing returns set in,

In a value added production function like the one used in the text, raw materials are

If equal amounts of a variable input are sequentially added to the fixed input in a typical production function,

The marginal product of a variable input is

Geometrically, the average product

If capital and labor are perfect substitutes in a production function, the isoquants for this function will be

In a typical short-run production function, before diminishing returns set in,

The law of diminishing returns to an input says that if other inputs are fixed

The short run is defined as that period of time during which

Which is true?

If a chef and her equipment transform $50 worth of raw foodstuff into a meal with a total value of $150,

Diminishing returns begin to occur

In a typical production function the relevant factors of production are land, labor, capital, and

A fixed input is an input that

In the long run

When the marginal product curve lies above the average product curve

The average product of a variable input

Geometrically, the marginal product

When Thomas Malthus argued that the prospects for human flourishing were gloomy and that starvation would eventually become the normal human condition he was assuming that