25 Questions
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Questions and Answers

- 1.A function that indicates the maximum output per unit of time that a firm can produce, for every combination of inputs with a given technology, is called:
- A.
An isoquant.

- B.
A production possibility curve

- C.
A production function

- D.
An isocost function

- 2.Writing total output as Q, change in output as DQ, total labor employment as L, and change in labor employment as DL, the marginal product of labor can be written algebraically as:
- A.
ChangeQ x L.

- B.
Q / L.

- C.
ChangeL /change Q.

- D.
ChangeQ /change L

- 3.The slope of the total product curve is the:
- A.
Average product.

- B.
Slope of a line from the origin to the point.

- C.
Marginal product.

- D.
Marginal rate of technical substitution.

- 4.When the average product is decreasing, marginal product:
- A.
Equals average product

- B.
Is increasing

- C.
Exceeds average product

- D.
Is decreasing

- E.
Is less than average product

- 5.In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that:
- A.
The average product of labor is always greater that the marginal product of labor

- B.
The average product of labor is always equal to the marginal product of labor

- C.
The average product of labor is always less than the marginal product of labor

- D.
As more labor is used, the average product of labor falls

- E.
There is no unambiguous relationship between labor's marginal and average products.

- 6.Marginal product crosses the horizontal axis (is equal to zero) at the point where:
- A.
Average product is maximized.

- B.
Total product is maximized.

- C.
Diminishing returns set in.

- D.
Output per worker reaches a maximum.

- E.
All of the above are true.

- 7.Assume that average product for six workers is fifteen. If the marginal product of the seventh worker is eighteen:
- A.
Marginal product is rising.

- B.
Marginal product is falling.

- C.
Average product is rising

- D.
Average product is falling.

- 8.Consider the following statements when answering this question; I). Suppose a semiconductor chip factory uses a technology where the average product of labor is constant for all employment levels. This technology obeys the law of diminishing returns. II). Suppose a semiconductor chip factory uses a technology where the marginal product of labor rises, then is constant and finally falls as employment increases. This technology obeys the law of diminishing returns.
- A.
I is true, and II is false.

- B.
I is false, and II is true.

- C.
Both I and II are true.

- D.
Both I and II are false.

- 9.If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:
- A.
The total product.

- B.
An isoquant.

- C.
The average product

- D.
The marginal product.

- E.
None of the above.

- 10.Use the following two statements to answer this question: I). Isoquants cannot cross one another. II). An isoquant that is twice the distance from the origin represents twice the level of output.
- A.
Both I and II are true

- B.
I is true, and II is false

- C.
I is false, and II is true

- D.
Both I and II are false

- 11.Use the following two statements to answer this question: I). If the marginal product of labor is zero, the total product of labor is at its maximum. II). If the marginal product of labor is at its maximum, the average product of labor is falling.
- A.
Both I and II are true

- B.
I is true, and II is false

- C.
I is false, and II is true

- D.
Both I and II are false

- 12.The marginal rate of technical substitution is equal to the:
- A.
Slope of the total product curve.

- B.
Change in output minus the change in labor

- C.
Change in output divided by the change in labor

- D.
Ratio of the marginal products of the inputs

- 13.Which point has the highest marginal productivity of labor? (Diagram above)
- A.
Point A.

- B.
Point B.

- C.
Point C.

- D.
Point D.

- E.
Cannot be determined from the information

- 14.The marginal rate of technical substitution is equal to:
- A.
The absolute value of the slope of an isoquant.

- B.
The ratio of the marginal products of the inputs.

- C.
The ratio of the prices of the inputs

- D.
All of the above.

- E.
(a) and (b) only.

- 15.A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should:
- A.
Use five fewer units of capital.

- B.
Use 0.8 fewer units of capital

- C.
Use 1.25 fewer units of capital.

- D.
Add 1.25 units of capital.

- E.
None of the above.

- 16.Increasing returns to scale in production means:
- A.
More than 10% as much of all inputs are required to increase output 10%.

- B.
Less than twice as much of all inputs are required to double output.

- C.
More than twice as much of only one input is required to double output.

- D.
Isoquants must be linear.

- E.
Both a and d.

- 17.The situation pictured is one of:
- A.
Constant returns to scale, because the line through the origin is linear.

- B.
Decreasing returns to scale, because the isoquants are convex.

- C.
Decreasing returns to scale, because doubling inputs results in less than double the amount of output.

- D.
Increasing returns to scale, because the isoquants are convex.

- E.
Increasing returns to scale, because doubling inputs results in more than double the amount of output.

- 18.The situation pictured in Figure below:
- A.
Is one of increasing marginal returns to labor.

- B.
Is one of increasing marginal returns to capital.

- C.
Is consistent with diminishing marginal product.

- D.
Contradicts the law of diminishing marginal product.

- E.
Shows decreasing returns to scale.

- 19.A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function C = L
^{0.5}M^{0.75}. This production function exhibits:- A.
Decreasing returns to scale for all output levels

- B.
Constant returns to scale for all output levels

- C.
Increasing returns to scale for all output levels

- D.
No clear pattern of returns to scale

- 20.If input prices are constant, a firm with increasing returns to scale can expect:
- A.
Costs to double as output doubles.

- B.
Costs to more than double as output doubles.

- C.
Costs to go up less than double as output doubles.

- D.
To hire more and more labor for a given amount of capital, since marginal product increases.

- E.
To never reach the point where the marginal product of labor is equal to the wage.

- 21.Suppose that a firm’s production function is given by KL +K. At point A the firm uses K=3 and L=5 units of labor. At point B, along the same isoquant, the firm would use only 1 unit of capital. Calculate how much labor is required at the point B.
- A.
7 units

- B.
17 units

- C.
18 units

- D.
10 units

- E.
None of the above

- 22.The manager at Skip's Pottery knows the marginal product of labor equals 6 and the marginal product of capital equals 30. Skip will be purchasing one more unit of capital. If the firm wishes to keep the level of output unchanged, then the manager must:
- A.
Decrease labor hired by 5 units.

- B.
Decrease labor hired by 1/5 unit.

- C.
Increase labor hired by 5 units.

- D.
Increase labor hired by 1/5 unit.

- 23.The local factory noticed that each of the following combinations of capital and labor produced the same level of output: (L=1, K=20) (L=2, K=15) (L=3, K=11) (L=4, K=8) (L=5, K=6) (L =6, K=5). This evidence suggests that:
- A.
Capital and labor are perfect substitutes

- B.
The isoquant is convex

- C.
Capital and labor are perfect complements

- D.
There are decreasing returns to scale

- 24.A technological improvement:
- A.
Changes the shape of the short-run production function

- B.
Results in a move from one point to another along a short-run production function

- C.
Has no impact on the production function

- D.
Shifts the short-run production function upward

- 25.The average product of labor is maximized when the marginal product of labor:
- A.
Equals the average product of labor

- B.
Equals zero

- C.
Is maximized

- D.
None of the above

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