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MULTIPLE CHOICE
1. In Fig. 10.1, marginal product peaks near point
a. f.
b. b.
c. h.
d. d.
2. In Fig. 10.1, marginal product is zero at point
a. a.
b. b.
c. h.
d. d.
3. At point d in Fig. 10.1, marginal product
a. is less than average product.
b. equals average product.
c. is greater than average product.
d. is negative.
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4. In Fig. 10.1, after the first worker is hired, marginal product is
a. increasing.
b. decreasing.
c. constant.
d. zero.
5. In general, increasing returns occur
a. as output expands at low levels of production.
b. through the entire range of production.
c. as output expands at high levels of production.
d. whenever the slope of the total product curve is positive.
6. A firm has fixed costs
a. in the short run and the long run.
b. in the short run but not in the long run.
c. in the long run but not in the short run.
d. neither in the long run nor in the short run.
7. By using more labor to produce more output, a firm can always reduce its
a. average cost of labor.
b. marginal fixed cost of labor.
c. marginal fixed cost of output.
d. average fixed cost.
8. A firm's average variable cost is $60, its total fixed cost is $3,000, and its output is 600 units. Its average total cost is
a. less than $58.
b. between $58 and $62.
c. between $62 and $64.
d. more than $64.
9. A firm's marginal cost is $82, its average total cost is $50, and its output is 800 units. Its total cost of producing 801 units probably is
a. less than $40,000.
b. between $40,000 and $40,050.
c. between $40,050 and $40,080.
d. greater than $40,080.
10. A firm's output is 80 units, its marginal cost is $42, its average variable cost is also $42, and its average fixed cost is $10. The slope of its average fixed cost curve is
a. negative.
b. 0.
c. between 0 and 0.50.
d. greater than 0.50.
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11. A firm's output is 80 units, its marginal cost is $42, its average variable cost is also $42, and its average fixed cost is $10. The slope of its average variable cost curve is
a. negative.
b. 0.
c. between 0 and 0.50.
d. greater than 0.50.
12. The range over which a firm's average variable cost is decreasing is the same as the range over which its
a. marginal cost is increasing.
b. average fixed cost is decreasing.
c. average product is increasing.
d. average product is decreasing.
13. In Fig. 10.4, the slope of the plant's total cost curve is shown by
a. curve AVC.
b. curve ATC.
c. curve MC.
d. the vertical distance between ATC and AVC.
14. In Fig. 10.4, to the right of point b, average fixed costs are
a. falling.
b. constant.
c. rising.
d. equal to the slope of ATC.
15. If a firm is on its long-run cost curve, it is producing a given output in a way that
a. may be neither technologically nor economically efficient.
b. is economically efficient but may not be technologically efficient.
c. is technologically efficient but may not be economically efficient.
d. is both technologically and economically efficient.
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16. Which of the following is FALSE?
a. Long-run average variable costs equal long-run average total costs.
b. Fixed costs decline in the long run.
c. Eventually, a firm will experience decreasing returns to scale.
d. In the long-run fixed costs are zero.
17. A firm is operating in its range of increasing returns to scale and is on both its LRAC curve and its short-run ATC curve. At that output, the slope of its LRAC curve is
a. zero and the slope of its ATC curve is zero.
b. zero and the slope of its ATC curve is negative.
c. negative and the slope of its ATC curve is zero.
d. negative and the slope of its ATC curve is negative.
18. When economies of scale are present, the LRAC curve is tangent to each short-run ATC curve
a. to the left of the ATC curve's minimum point.
b. to the right of the ATC curve's minimum point.
c. at the ATC curve's minimum point.
d. at no points.
19. In Fig. 10.5, the long-run average cost curve changes from increasing to decreasing returns to scale at output
a. Q.
b. QŽ.
c. Q.
d. Q".
20. The slope of an isoquant describes the
a. rate at which output increases as inputs increase.
b. rate at which output changes when one input changes.
c. rate at which one factor substitutes for another for a given level of output.
d. rate at which one factor changes output, with other inputs held constant.
21. An increase in the price of an input causes
a. a decrease in the use of other inputs.
b. a substitution away from that input.
c. the isoquant to become steeper everywhere.
d. the isoquant to become flatter everywhere.
22. The marginal rate of substitution of labor for capital is
a. the increase in labor needed per unit decrease in capital so that output remains constant.
b. the decrease in labor needed per unit decrease in capital so that output remains constant.
c. the decrease in capital needed per unit increase in labor so that output remains constant.
d. equal to the wage rate.
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23. In Fig. 10.7, the isoquant with the highest level of output is
a. I™.
b. I.
c. IŽ.
d. dependent on the quantity of A.
24. In Fig. 10.7, the isoquant with the lowest level of output is
a. I™.
b. I.
c. IŽ.
d. dependent on the quantity of B.
25. The marginal rate of substitution of labor for capital diminishes as the amount of labor
a. decreases and the amount of capital decreases.
b. decreases and the amount of capital increases.
c. increases and the amount of capital decreases.
d. increases and the amount of capital increases.
26. An isocost line is drawn on a diagram with capital on the vertical axis and labor on the horizontal axis. The price of capital is $45, and the wage rate is $15. The magnitude of the slope of the isocost line is
a. 1/3.
b. 3.
c. 15.
d. 45.
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27. A normal isocost line has
a. constant negative slope.
b. constant positive slope.
c. negative slope and becomes steeper to the right.
d. negative slope and becomes flatter to the right.
28. A normal isoquant line has
a. constant negative slope.
b. constant positive slope.
c. negative slope and becomes steeper to the right.
d. negative slope and becomes flatter to the right.
29. A firm's isoquants are drawn on a diagram, with capital on the vertical axis and labor on the horizontal axis. If the firm is producing at a point where the isoquant is steeper than the isocost line, it could produce the same output at a lower cost by
a. paying higher wage rates.
b. raising the rental rate for capital.
c. substituting labor for capital.
d. substituting capital for labor.
30. A firm's isoquants are drawn on a diagram, with capital on the vertical axis and labor on the horizontal axis. If the firm is producing at a point where the isoquant is flatter than the isocost line, it could produce the same output at a lower cost by
a. paying higher wage rates.
b. raising the rental rate for capital.
c. substituting labor for capital.
d. substituting capital for labor.
31. The price of capital is $30, the wage rate is $10, and the ratio of the marginal product of labor to the marginal product of capital is 1/4. You can be sure the firm will use
a. more capital and more labor.
b. less capital and less labor.
c. either more capital or less labor.
d. either more labor or less capital.
32. The price of capital is $30, the wage rate is $10, and the ratio of the marginal product of labor to the marginal product of capital is 1/2. You can be sure the firm will use
a. more capital and more labor.
b. less capital and less labor.
c. either more capital or less labor.
d. either more labor or less capital.
33. A firm's isoquants are drawn on a diagram, with capital on the vertical axis and labor on the horizontal axis. If the firm is producing at a point where the isoquant is flatter than the isocost line, at that point the ratio of the price of capital to the wage rate must be
a. smaller than the ratio of the marginal product of capital to the marginal product of labor.
b. larger than the ratio of the marginal product of capital to the marginal product of labor.
c. smaller than the ratio of the marginal product of capital to the average product of capital.
d. larger than the ratio of the marginal product of capital to the average product of capital.
34. Which cost always rises as output increases?
a. Total cost.
b. Marginal cost.
c. Average total cost.
d. Average fixed cost.
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35. The average variable cost curve will shift down if
a. there is a decrease in fixed costs.
b. there is a technological advance.
c. the cost of a variable input increases.
d. the price of output decreases.
36. Which of the following characterizes the least-cost technique of production?
a. The marginal rate of substitution of labor for capital is zero.
b. The slope of the isoquant is zero.
c. Increasing output by using more capital has the same marginal cost as increasing output by using more labor.
d. The marginal product of labor equals the marginal product of capital.
37. The change in total cost from producing another unit of output equals the
a. average total cost.
b. variable cost.
c. average variable cost.
d. marginal cost.
38. The average variable cost curve shifts upward if
a. fixed costs rise.
b. technological advances are made.
c. the cost of a variable input rises.
d. the price of output rises.
39. If the ATC curve is falling, the MC curve must be
a. rising.
b. falling.
c. above ATC.
d. below ATC.
Table 10.4
Swanky's Short-Run Production Function
Labor (workers) Total product (sweaters per day)
컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴
0 0
1 3
2 12
3 19
4 23
5 25
40. Refer to Table 10.4. If Swanky employs 5 workers, total product (measured in sweaters per day) and average product and marginal product (measured in sweaters per worker) are
a. 23, 5.00, and 4 respectively.
b. 23, 5.75, and 4 respectively.
c. 25, 5.00, and 2 respectively.
d. 25, 5.75, and 4 respectively.
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41. Fig. 10.8 shows the total product curve of Swanky, Inc. Swanky employs 10 workers and is at point A on the total product curve. Marginal product at Swanky, Inc. is measured by
a. the slope of the total product curve at point A.
b. the intercept of the total product curve.
c. the slope of the straight line from the origin to the point A.
d. the vertical distance from the x-axis to point A.
42. In Fig 10.9, which of the following statements is FALSE?
a. The total fixed cost curve is curve A.
b. Total variable cost and total cost both increase as output increases.
c. Marginal cost is equal to the slope of curve B.
d. The vertical gap between curves B and C is equal to average fixed cost.
