41
69) A firm is operating such that the marginal product of labor is 10 and the marginal product of capital is
20. The firm is minimizing its costs only if
A) the wage is half the rental rate.
B) the rental rate is half the wage.
C) since capital is more productive than labor, the firm must be minimizing cost.
D) Given this information, the firm can’t be minimizing cost under any circumstances.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
70) A firm produces 5 units of output from the last dollar it spends on labor and 10 units from the last
dollar spent on capital. The firm should
A) employ more labor and less capital.
B) employ more capital and less labor.
C) employ more capital and labor.
D) employ less capital and labor.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
71) If the product derived from the last dollar spent on labor is greater than the product derived from the
last dollar spent on capital, then the firm
A) is minimizing costs.
B) should use more labor and less capital to minimize costs.
C) should use less labor and more capital to minimize costs.
D) should increase the price paid to labor and decrease the price paid to capital to minimize costs.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
72) If the product derived from the last dollar spent on labor is less than the product derived from the last
dollar spent on capital, then the firm
A) is minimizing costs.
B) should use more labor and less capital to minimize costs.
C) should use less labor and more capital to minimize costs.
D) should increase the price paid to labor and decrease the price paid to capital to minimize costs.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
42
73) If Microsoft is earning a rate of return greater than the return necessary for the business to continue
operations in the long run, then
A) total costs exceed total revenue.
B) total costs exceed a normal rate of return.
C) the normal rate of return is zero.
D) the firm is earning an economic profit.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
74) If Pets.com is earning a rate of return less than necessary for the business to continue operations, then
A) total revenue exceeds economic costs.
B) economic costs exceed total revenue.
C) normal profit is zero.
D) economic profit is zero.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
75) You are certain that a normal rate of return is 18% for the computer industry. What do you expect for
a normal rate of return in the computer software industry, which is considered to be much riskier than
the computer industry?
A) 18%
B) Less than 18%
C) Above 18%
D) The rate on government bonds
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
76) The formula for the marginal product of labor is
A) L/q.
B) (ΔL)(Δq).
C) q/L.
D) Δq/ΔL.
Topic: The Production Process
Skill: Definition
Learning Outcome: Micro–17
43
77) Assume the total product of two workers is 100 and the total product of three workers is 120. The
average product of three workers is ________, and the marginal product of the third worker is ________.
A) 40; 20
B) 20; 100
C) 13.33; 6.67
D) 120; 100
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
78) Assume the total product of two workers is 130 and the total product of three workers is 150. The
average product of three workers is ________, and the marginal product of the third worker is ________.
A) 40; 10
B) 50; 20
C) 13.33; 6.67
D) 120; 100
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
79) Assume the total product of two workers is 80 and the total product of three workers is 90. The
average product of three workers is ________, and the marginal product of the third worker is ________.
A) 10; 45
B) 30; 10
C) 10; 13.33
D) 160; 270
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
80) Assume the total product of three workers is 120 and the total product of four workers is 160. The
average product of four workers is ________, and the marginal product of the fourth worker is ________.
A) 10; 40
B) 30; 10
C) 40; 40
D) 160; 40
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
44
81) When Burning Bob’s Salsa House hires one worker, 30 customers can be served in an hour. When
Burning Bob‘s Salsa House hires two workers, 50 customers can be served in an hour. The marginal
product of the second worker is ________ customers served per hour.
A) 20
B) 30
C) 50
D) 67.5
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
82) What is the formula for the average product of labor?
A) Δq/ΔL
B) ΔL/Δq
C) q/L
D) L/q
Topic: The Production Process
Skill: Definition
Learning Outcome: Micro–17
83) If the marginal product of labor equals the average product of labor, then the
A) average product is maximized.
B) marginal product is maximized.
C) marginal product is still increasing.
D) average product is still increasing.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
84) Assume that the relative prices of capital and labor have not changed. As a firm’s expenditures for
capital and labor increase, its isocost line
A) shifts out parallel to the original isocost line.
B) shifts in parallel to the original isocost line.
C) rotates outward on the Y–intercept.
D) rotates outward on the X–intercept.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
45
85) Assume that the relative prices of capital and labor have not changed. As a firm’s expenditures for
capital and labor decrease, its isocost line
A) shifts out parallel to the original isocost line.
B) shifts in parallel to the original isocost line.
C) rotates outward on the Y–intercept.
D) rotates outward on the X–intercept.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
86) Related to the Economics in Practice on page 150: For pineapple farmers in Ghana, the choice of how
much fertilizer to use was highly dependent on how much fertilizer their more successful neighbor
farmers used. This process of technology adoption is referred to as
A) trial and error.
B) capital–intensive adaptation.
C) social learning.
D) mass production.
Topic: The Production Process: Economics in Practice
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
87) The quantitative relationship between inputs and outputs is called
A) consumer technology.
B) labor–intensive technology.
C) capital–intensive technology.
D) production technology.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–13
88) Firms in an economy with high labor costs have an incentive to use more ________ techniques.
A) labor–intensive
B) capital–intensive
C) capital–saving
D) labor–dependent
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
46
89) Firms in an economy with high capital costs have an incentive to use more ________ techniques.
A) labor–intensive
B) capital–intensive
C) labor–saving
D) capital–dependent
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
Use the information provided in Table 7.4 below to answer the question(s) that follow.
Table 7.4
Inputs Required to Produce a Product Using Alternative Technologies
Technology
Units of Capital
Number of Employees
A
8
36
B
12
24
C
16
16
D
24
12
90) Refer to Table 7.4. Which technology is the most labor intensive?
A) A
B) B
C) C
D) D
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
91) Refer to Table 7.4. Which technology is the most capital intensive?
A) A
B) B
C) C
D) D
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
47
92) Refer to Table 7.4. If the hourly price of capital is $20 and the hourly wage rate is $14, which
production technology should be selected?
A) A
B) B
C) C
D) D
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
93) Refer to Table 7.4. If the hourly price of capital is $40 and the hourly wage rate is $10, which
production technology should be selected?
A) A
B) B
C) C
D) D
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
Refer to Scenario 7.8 below to answer the question(s) that follow.
SCENARIO 7.8: A swimming pool cleaning company has the following production possibilities. With
one, two, three, and four workers, the company can clean 5, 12, 17, and 20 pools per day, respectively.
94) Refer to Scenario 7.8. The marginal product of the second worker is
A) 3.
B) 5.
C) 7.
D) 12.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
48
95) Refer to Scenario 7.8. The marginal product of the third worker is
A) 4.
B) 5.
C) 12.
D) 17.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
96) Refer to Scenario 7.8. The marginal product of the fourth worker is
A) 2.
B) 3.
C) 17.
D) 20.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
97) Refer to Scenario 7.8. Diminishing returns to labor set in with the ________ worker.
A) first
B) second
C) third
D) fourth
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
98) Refer to Scenario 7.8. The average product of labor with three workers is
A) 333.
B) 3.5.
C) 5.67.
D) 11.33.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
49
99) Refer to Scenario 7.8. The average product of labor with four workers is
A) 3.
B) 3.3.
C) 5.
D) 13.5.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
100) When Burger Barn hires one worker, 10 customers can be served in an hour. When Burger Barn hires
two workers, 25 customers can be served in an hour. The marginal product of the second worker is
________ customers served per hour.
A) 15
B) 30
C) 40
D) 67.5
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
101) The marginal products of the first, second, and third workers are 50, 34, and 22, respectively. If four
workers can produce 116 units of output, then the marginal product of the fourth worker is ________.
A) 10
B) 12
C) 22
D) 116
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–20
102) At the Pampered Pet Salon the marginal products of the first, second, and third workers are 50, 36,
and 25 dogs washed, respectively. The total product (number of dogs washed) of the first two workers is
A) 11.
B) 50.
C) 86.
D) 111.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
50
103) At the Pampered Pet Salon the marginal products of the first, second, and third workers are 50, 36,
and 25 dogs washed, respectively. The total product (number of dogs washed) of the three workers is
A) 50.
B) 86.
C) 107.
D) 111.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
104) At the Larson Bakery the marginal products of the first, second, and third sales clerks are 30, 27, and
21 customers served, respectively. The total product (number of customers served) of the first two sales
clerks is
A) 6.
B) 17.
C) 57.
D) 78.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
105) At the Larson Bakery the marginal products of the first, second, and third sales clerks are 30, 27, and
21 customers served, respectively. The total product (number of customers served) of the three sales
clerks is
A) 30.
B) 57.
C) 78.
D) 109.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17