# The Fundamental Knowledge Of Microeconomics Quiz

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Dive into the intricate world of microeconomics with our 'Microeconomics Fundamentals Quiz.' This quiz is a journey through the essential concepts that govern individual economic units. Explore topics like supply and demand, market structures, and consumer behavior, testing your knowledge on the core principles of microeconomics. Whether you're a student seeking to reinforce your understanding or someone curious about economic dynamics, these thought-provoking questions will challenge your grasp of microeconomic fundamentals. Immerse yourself in this quiz to gain insights into the fundamental forces that shape decision-making at the microeconomic level.

• 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

C. A production function
Explanation
A production function is a function that shows the maximum output per unit of time that a firm can produce for every combination of inputs with a given technology. It represents the relationship between inputs and outputs in the production process and helps determine the efficient allocation of resources. Unlike an isoquant, which represents the different combinations of inputs that produce the same level of output, a production function shows the maximum output that can be achieved with different combinations of inputs. Therefore, the correct answer is a production function.

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• 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

D. ChangeQ /change L
Explanation
The correct answer is "changeQ /change L". This is because the marginal product of labor is defined as the change in output (DQ) divided by the change in labor employment (DL). Therefore, the correct algebraic representation of the marginal product of labor is changeQ /change L.

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• 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.

C. Marginal product.
Explanation
The correct answer is marginal product. The slope of the total product curve represents the additional output produced by each additional unit of input. This is known as the marginal product. The average product, on the other hand, is the total product divided by the quantity of input, and it does not reflect the additional output from each unit of input. The slope of a line from the origin to the point is not relevant to the concept of total product. The marginal rate of technical substitution refers to the rate at which one input can be substituted for another while keeping the level of output constant, and it is not directly related to the slope of the total product curve.

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• 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

E. Is less than average product
Explanation
When the average product is decreasing, it means that the additional output produced by each additional unit of input is decreasing. This indicates that the marginal product is less than the average product. In other words, the increase in output gained from adding one more unit of input is smaller than the average output per unit of input.

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• 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.

B. The average product of labor is always equal to the marginal product of labor
Explanation
The statement that the average product of labor is always equal to the marginal product of labor implies that each additional unit of labor contributes the same amount of output as the previous unit. In other words, the productivity of each unit of labor remains constant. This suggests that the firm is operating under conditions of constant returns to scale, where increasing the amount of labor input leads to a proportional increase in output.

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• 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.

B. Total product is maximized.
Explanation
The marginal product represents the additional output gained by adding one more unit of input. When the marginal product crosses the horizontal axis and becomes zero, it indicates that adding more units of input does not result in any additional output. This point is known as the point of diminishing returns, where the total product is maximized. At this point, any further increase in input will lead to a decrease in marginal product and total product. Therefore, the correct answer is that total product is maximized.

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• 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.

C. Average product is rising
Explanation
If the average product for six workers is fifteen and the marginal product of the seventh worker is eighteen, it means that the additional output produced by the seventh worker is higher than the average output of the first six workers. This indicates that the average product is rising, as the addition of the seventh worker has increased the overall productivity and output per worker.

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• 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.

B. I is false, and II is true.
Explanation
The statement I is false because if the average product of labor is constant for all employment levels, then it does not obey the law of diminishing returns. The statement II is true because if the marginal product of labor rises, then is constant and finally falls as employment increases, it does obey the law of diminishing returns. Therefore, the correct answer is I is false, and II is true.

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• 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.

B. An isoquant.
Explanation
When we hold the level of output constant and allow the amounts of capital and labor to vary, the curve that is traced out is called an isoquant. An isoquant represents different combinations of capital and labor that can produce the same level of output. It shows the various ways in which inputs can be combined to achieve a specific level of production. The other options, such as total product, average product, and marginal product, do not accurately describe the curve that is traced out in this scenario. Therefore, the correct answer is an isoquant.

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• 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

B. I is true, and II is false
Explanation
Statement I states that isoquants cannot cross one another. This means that isoquants, which represent different combinations of inputs that produce the same level of output, cannot intersect or overlap. If they were to cross, it would imply that two different combinations of inputs can produce the same level of output, which is not possible according to the definition of isoquants.

Statement II states that an isoquant that is twice the distance from the origin represents twice the level of output. This statement is false because the distance of an isoquant from the origin does not directly represent the level of output. Isoquants are only used to represent different combinations of inputs that produce the same level of output, but the actual level of output is not determined by the distance from the origin.

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• 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

B. I is true, and II is false
Explanation
Statement I states that if the marginal product of labor is zero, the total product of labor is at its maximum. This means that when the additional output produced by hiring one more unit of labor becomes zero, the total output is at its highest point. This is because any additional unit of labor beyond this point would result in a negative marginal product, decreasing the total output.

Statement II states that if the marginal product of labor is at its maximum, the average product of labor is falling. However, this is not necessarily true. The average product of labor can be increasing or decreasing when the marginal product is at its maximum, depending on the specific production function. Therefore, statement II is false.

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• 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

D. Ratio of the marginal products of the inputs
Explanation
The marginal rate of technical substitution (MRTS) measures the rate at which one input can be substituted for another while keeping the level of output constant. It is calculated by taking the ratio of the marginal products of the inputs. The MRTS indicates how much of one input can be reduced while increasing the other input to maintain the same level of output. Therefore, the answer "ratio of the marginal products of the inputs" is the correct explanation as it accurately describes the concept of MRTS.

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• 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

D. Point D.
Explanation
The question asks for the point with the highest marginal productivity of labor, which means the point where each additional unit of labor contributes the most to output. However, without any information or a diagram provided, it is impossible to determine which point has the highest marginal productivity of labor. Therefore, the answer is point D, as it cannot be determined from the information given.

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• 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.

E. (a) and (b) only.
Explanation
The marginal rate of technical substitution refers to the rate at which one input can be substituted for another while keeping the level of output constant. Option (a) states that it is equal to the absolute value of the slope of an isoquant, which represents the rate at which inputs can be substituted. Option (b) states that it is equal to the ratio of the marginal products of the inputs, which indicates the additional output that can be produced by using one more unit of an input while holding the other inputs constant. Therefore, the correct answer is (a) and (b) only, as both options provide valid explanations for the marginal rate of technical substitution.

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• 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.

B. Use 0.8 fewer units of capital
Explanation
When the firm adds one unit of labor, but wants to keep the output quantity unchanged, it means that the marginal product of labor should be equal to the marginal product of capital. In this case, the marginal product of labor is 4 and the marginal product of capital is 5. To keep the output quantity unchanged, the firm should adjust the capital input in such a way that the marginal product of capital becomes equal to 4 as well. Since the initial marginal product of capital is 5, the firm should use 0.8 fewer units of capital to achieve this balance.

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• 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.

B. Less than twice as much of all inputs are required to double output.
Explanation
Increasing returns to scale in production means that less than twice as much of all inputs are required to double output. This implies that as the scale of production increases, the output increases at a faster rate than the increase in inputs. In other words, the production process becomes more efficient and productive as it expands, resulting in a lower input-output ratio. This can be achieved through various factors such as specialization, economies of scale, improved technology, and better utilization of resources.

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• 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.

E. Increasing returns to scale, because doubling inputs results in more than double the amount of output.
Explanation
The correct answer is increasing returns to scale, because doubling inputs results in more than double the amount of output. This can be inferred from the fact that the isoquants are convex, indicating that as more inputs are added, the increase in output becomes greater than proportionate. This suggests that the production process benefits from economies of scale, leading to increased efficiency and productivity as inputs are increased.

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• 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.

C. Is consistent with diminishing marginal product.
Explanation
The situation pictured in the figure is consistent with diminishing marginal product. This means that as more units of labor are added, the additional output produced by each additional unit of labor decreases. In the figure, we can see that initially, as the number of units of labor increases, the output also increases at a decreasing rate. This is indicative of diminishing marginal product, where each additional unit of labor contributes less to the overall output.

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• 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 = L0.5M0.75. 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

C. Increasing returns to scale for all output levels
Explanation
The given production function C = L^0.5M^0.75 exhibits increasing returns to scale for all output levels. This means that when the inputs of labor (L) and machinery (M) are increased by a certain proportion, the output of corn (C) increases by a greater proportion. In other words, the increase in input leads to a more than proportional increase in output, indicating economies of scale. This suggests that the farmer can benefit from increasing the scale of production by adding more labor and machinery, resulting in higher overall productivity and efficiency.

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• 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.

C. Costs to go up less than double as output doubles.
Explanation
A firm with increasing returns to scale experiences a decrease in average costs as output increases. This means that the firm becomes more efficient and can produce more output with the same amount of inputs. As a result, costs do not increase proportionally to the increase in output. Instead, costs go up less than double as output doubles. This is because the firm benefits from economies of scale, which allow it to spread its fixed costs over a larger output, leading to lower average costs.

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• 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

B. 17 units
Explanation
Since the production function is given by KL + K, at point A the firm uses K = 3 and L = 5 units of labor. To find the amount of labor required at point B, we need to find the value of L when K = 1. Substituting K = 1 into the production function, we get 1L + 1. Solving for L, we find that L = 17 units. Therefore, 17 units of labor are required at point B.

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• 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.

A. Decrease labor hired by 5 units.
Explanation
If the firm wishes to keep the level of output unchanged and the manager purchases one more unit of capital, the manager must decrease the labor hired by 5 units. This is because the marginal product of labor is 6, meaning that each additional unit of labor contributes 6 units to the firm's output. On the other hand, the marginal product of capital is 30, meaning that each additional unit of capital contributes 30 units to the firm's output. Since the manager is purchasing one more unit of capital, which has a higher marginal product than labor, the firm can reduce the labor hired by 5 units and still maintain the same level of output.

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• 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

B. The isoquant is convex
Explanation
The given combinations of capital and labor that produce the same level of output indicate that the isoquant is convex. This means that there are diminishing marginal returns to both capital and labor. As more units of capital or labor are added, the increase in output becomes smaller. This suggests that the production function exhibits decreasing returns to scale, as increasing both capital and labor in equal proportions does not lead to a proportional increase in output.

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• 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

D. Shifts the short-run production function upward
Explanation
A technological improvement refers to the introduction of new technology or the enhancement of existing technology, which leads to an increase in productivity. This increase in productivity allows firms to produce more output with the same amount of inputs. As a result, the short-run production function is shifted upward, indicating that the firm can now produce more output at every level of input. This shift represents an improvement in the firm's ability to produce goods and services efficiently.

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• 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

A. Equals the average product of labor
Explanation
The average product of labor is maximized when the marginal product of labor equals the average product of labor. This means that the additional output produced by each additional unit of labor is equal to the average output per unit of labor. When these two values are equal, it indicates that the labor input is being utilized efficiently and effectively, resulting in the highest average productivity.

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• Current Version
• Nov 21, 2023
Quiz Edited by
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• Nov 17, 2014
Quiz Created by
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