Question 1

What is the term for dividing up the production process into specialized tasks?

Accepted Answer

Division of labour is the term used to describe the process of breaking down a production process into specialized tasks. Each worker becomes an expert in their particular task, leading to increased efficiency and productivity. This concept was popularized by Adam Smith in his book "The Wealth of Nations".

Question 2

Below are some production data for Quite Simple Products Ltd.
 
-Refer to the information above to answer this question.How many units of labour are being used when the firm's marginal cost is at a minimum?

Accepted Answer

The marginal cost is at a minimum when the marginal product of labor is at its maximum. This typically occurs when the firm is using 3 units of labor, as it is a common point where diminishing returns begin to set in.

Question 3

Below are some production data for Quite Simple Products Ltd.
 
-Refer to the information above to answer this question.What is the marginal product of the fifth unit of labour?

Accepted Answer

The marginal product of labour can be calculated by finding the difference in total product between two successive units of labour. The total product for the fourth unit of labour is 120, and the total product for the fifth unit of labour is 150. Therefore, the marginal product of the fifth unit of labour is 30.

Question 4

What is meant by the term short run?

Accepted Answer

In the short run, at least one input (typically capital) is fixed, meaning it cannot be changed, while other inputs (like labor) can be adjusted. This contrasts with the long run, where all inputs can be varied.

Question 5

What will happen to total product after the point of diminishing returns has been reached?

Accepted Answer

After the point of diminishing returns has been reached, total product continues to increase, but at a decreasing rate, until the marginal product becomes zero. At that point, adding more units of the variable input (e.g., labor) does not increase total output.

Question 6

Below are some production data for Quite Simple Products Ltd.
 
-Refer to the information above to answer this question.What is the average product of the sixth unit of labour?

Accepted Answer

The average product of labor is calculated by dividing the total output by the number of units of labor. From the production data given, the total output for the sixth unit of labor is 175, and since the sixth unit of labor is the only unit of labor being considered, the average product of the sixth unit of labor is 175/5 = 35. Therefore, the correct answer is D.

Question 7

If marginal product is declining,which of the following statements is correct?

Accepted Answer

When marginal product is declining, the average product could be rising if the marginal product is still above the average product, or falling if the marginal product is below the average product.

Question 8

What term refers to the total output divided by the quantity of inputs used to produce that total?

Accepted Answer

The term that refers to the total output divided by the quantity of inputs used to produce that total is average product. It is used to measure the productivity of each unit of input used in production.

Question 9

Which of the following statements is true about the advantages gained through the division of labour?

Accepted Answer

The division of labour results in both the marginal and average product of labour increasing. This is because when workers specialize in specific tasks, they become more skilled at those tasks and therefore more efficient, leading to an increase in both marginal and average productivity. Option A is incorrect because the division of labour affects both marginal and average productivity. Option B is incorrect because the division of labour was first mentioned by Adam Smith, not David Ricardo. Option C is incorrect because the division of labour has widespread application in various industries.

Question 10

Below are some production data for Quite Simple Products Ltd.
 
-Refer to the previous question to answer this question.How many units of labour are being used when diminishing returns first become evident?

Accepted Answer

The answer of Below are some production data for Quite...

Question 11

What is the term for the increase in total product resulting from the addition of one more unit of input?

Accepted Answer

The term for the increase in total product resulting from the addition of one more unit of input is called "marginal product." This reflects the change in output that results from a change in the use of one input, while holding all other inputs constant. Therefore, option B is the correct choice.

Question 12

What is the law of diminishing returns?

Accepted Answer

The law of diminishing returns states that as more of a variable input (such as labor or raw materials) is added to a fixed input (such as capital or land) in the production process, the resulting increase in output will, at some point, diminish. This is due to the fact that additions of the variable input will eventually lead to inefficiencies, such as overcrowding or limited resources.

Question 13

Below are some production data for Quite Simple Products Ltd.
 
-Refer to the information above to answer this question.How many units of labour are being used when the firm is at its most productive point?

Accepted Answer

The term "unit of labour" refers to the number of workers employed by the firm. The data shows that at the point where the firm is producing the highest output (i.e. the maximum point on the graph), the firm is using 4 units of labour.

Question 14

What term is used to describe the result of adding more and more units of a variable resource to a production process where there is at least one fixed variable and the resulting increase in output begins to decrease?

Accepted Answer

The term used to describe the result of adding more and more units of a variable resource to a production process where there is at least one fixed variable and the resulting increase in output begins to decrease is "the law of diminishing returns." This law states that as more and more of a variable resource (such as labor) is added to a fixed amount of another resource (such as land), the marginal product of the variable resource will eventually begin to decrease, leading to diminishing returns.

Question 15

Below are some production data for Quite Simple Products Ltd.
 
-Refer to the information above to answer this question.What is the value of average product when marginal product is zero?

Accepted Answer

In order for marginal product to be zero, the average product must be at its maximum value. Looking at the production data, the maximum value for average product is 27 units (when 3 workers are hired). Therefore, the answer is D.

Question 16

Which of the following statements is true about the marginal product of labour?

Accepted Answer

The marginal product of labour (MPL) is the additional output that results from using one more unit of labour while holding all other inputs constant. Therefore, it is the increase in total output resulting from the use of one more unit of labour. Option A is incorrect because it describes the average product of labour (APL), which is total output divided by the quantity of labour inputs used. Option C is incorrect because it describes the average product of labour (APL) as well. Option D is incorrect because it doesn't make sense mathematically.

Question 17

What do economists mean by the term "the most productive output"?

Accepted Answer

The most productive output refers to the level of output where the average product, which is the output per unit of input, is at its maximum.

Question 18

What is significant about the level of output at which marginal product begins to decline?

Accepted Answer

This is the point at which the addition of one more unit of input does not result in an increase in output at the same rate as before, signaling the beginning of diminishing returns.

Question 19

Which of the following statements about the marginal product of labour is correct?

Accepted Answer

The marginal product of labour may either rise or fall as more labour is used, depending on the stage of production and whether the marginal productivity of labour is still increasing or has reached a maximum and begun to decline.

Question 20

What is the significance of the maximum point on the total product curve?

Accepted Answer

The maximum point on the total product curve signifies the peak of production, beyond which additional inputs lead to a decrease in output. At this point, the marginal product, which is the additional output generated by an additional unit of input, is zero because the total product is at its maximum and does not increase with an additional unit of input.

Quiz 6: A Firms Production Decisions and Costs in the Short Run