51
106) If diminishing marginal returns have already set in for Danica’s Dog Training Emporium and the
marginal product of the fifth dog trainer is 18, then the marginal product of the fourth dog trainer must
be
A) negative.
B) zero.
C) less than 18.
D) greater than 18.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
107) If capital is a variable input in production, the law of diminishing marginal returns implies that in
the short run,
A) capital‘s marginal product is constant.
B) capital’s marginal product decreases after a certain point.
C) total product is negative.
D) total product is negative after a certain point has been reached.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
108) If the marginal product of labor is greater than the average product of labor, then the
A) marginal product must be increasing.
B) average product must be increasing.
C) marginal product must be decreasing.
D) average product must be decreasing.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
109) Average product of labor is calculated as
A) (total product) × (total units of labor).
B) (total product) / (total units of labor).
C) (total units of labor) / (total product).
D) (marginal product) / (total product).
Topic: The Production Process
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Micro–17
52
Refer to the information provided in Table 7.5 below to answer the question that follows.
Table 7.5
L
0
1
2
3
4
5
Q
0
15
30
45
60
75
110) Refer to Table 7.5. Suppose output varies, ceteris paribus, with labor input in the manner displayed in
the table above. After how many units of labor do diminishing returns set in?
A) 3
B) 4
C) 5
D) They do not set in.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
111) When a firm maximizes total product in the short run, average product is
A) zero.
B) negative.
C) positive.
D) Any of the above can be correct.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
112) At the point where total product is ________, marginal product is zero, but average product is still
positive.
A) maximized
B) minimized
C) zero
D) negative
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
53
113) If marginal product is less than average product, then
A) average product must be increasing.
B) marginal product must be decreasing.
C) marginal product must be increasing.
D) marginal product could either be increasing or decreasing.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
114) If we assume that labor is the only variable input, the slope of the short–run ________ curve
measures the marginal product of labor.
A) average product
B) marginal product
C) total product
D) total cost
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
115) You own a business that distributes restaurant menus to houses and apartments. You have an
incentive to substitute labor for capital if the
A) price of capital decreases.
B) price of labor decreases.
C) price of labor increases.
D) marginal product of labor decreases.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
116) Firms have an incentive to substitute capital for labor as the
A) price of labor decreases.
B) price of capital increases.
C) price of labor increases.
D) marginal product of labor increases.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
54
117) The specific technology chosen by a profit–maximizing clothing manufacturer depends on
A) input prices.
B) output prices.
C) demand for the output.
D) supply of the output.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
118) Assume the prices of labor and capital remain the same, but the average educational level of workers
decreases and therefore labor productivity decreases. This would lead a firm to
A) use a more capital–intensive production technology.
B) use a more labor–intensive technology.
C) not change its production technology, but produce fewer units of output.
D) use only capital to produce the product.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
119) Assume that capital and labor are complementary inputs. If the firm decreases the amount of capital
it employs, this would
A) cause the firm to move down along the MP schedule for labor.
B) cause the firm to move up along its MP schedule for labor.
C) shift the firm‘s MP schedule for labor to the left.
D) shift the firm’s MP schedule for labor to the right.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
120) The equation (MPL/PL) = (MPK/PK) represents
A) profit maximization.
B) cost minimization.
C) the short–run production function.
D) diminishing marginal returns.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
55
121) A firm is operating such that the marginal product of labor is 48 and the marginal product of capital
is 12. The firm is minimizing its costs only if
A) the wage is one fourth the rental rate.
B) the rental rate is one fourth 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
122) A firm produces 15 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
123) To minimize costs, a firm should use more labor and less capital if the product derived from the last
dollar spent on labor is ________ the product derived from the last dollar spent on capital.
A) less than
B) greater than
C) equal to
D) either greater than or less than
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
124) To minimize costs, a firm should use more capital and less labor if the product derived from the last
dollar spent on labor is ________ the product derived from the last dollar spent on capital.
A) less than
B) greater than
C) equal to
D) either greater than or less than
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
56
125) If a company is earning a rate of return less than the return necessary for the business to continue
operations in the long run, then
A) total revenue exceeds total costs.
B) total costs are less than a normal rate of return.
C) the firm’s normal rate of return is zero.
D) the firm is suffering an economic loss.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
126) If Overstock.com earns a rate of return exactly equal to what is necessary for it to continue
operations, then its
A) total revenue exceeds its economic costs.
B) economic costs exceed its 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
127) You are certain that the restaurant industry’s normal rate of return is 12%. You would expect a(n)
________ normal rate of return for a soft drink manufacturing industry that people consider much less
risky than the restaurant industry.
A) 12%
B) less than 12%
C) above 12%
D) risk free (the rate on government bonds)
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
128) The formula Δq/ΔL represents
A) total product.
B) the average product of labor.
C) the capital–to–labor ratio.
D) the marginal product of labor.
Topic: The Production Process
Skill: Definition
Learning Outcome: Micro–17
57
129) Assume the total product of two workers is 200 and the total product of three workers is 300. The
three workers’ average product is ________ while the third worker’s marginal product is ________.
A) 80; 40
B) 40; 80
C) 100; 100
D) 300; 200
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
130) Assume the total product of two workers is 110 and the total product of three workers is 120. The
three worker’s average product is ________ while the third worker’s marginal product is ________.
A) 40; 10
B) 40; 20
C) 50; 10
D) 120; 110
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
131) Assume the total product of two workers is 160 and the total product of three workers is 180. The
three worker’s average product is ________ while the third worker’s marginal product is ________.
A) 20; 60
B) 60; 20
C) 20; 26.67
D) 320; 540
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
58
132) Assume the total product of three workers is 60 and the total product of four workers is 80. The four
worker’s average product is ________ while the fourth worker’s marginal product is ________.
A) 5; 15
B) 15; 5
C) 20; 20
D) 80; 20
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
133) Hannah’s House of Hotcakes serves 30 customers in an hour when it hires one worker. It serves 60
customers in an hour when it hires two workers. 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
134) The formula q/L represents
A) total product.
B) the average product of labor.
C) the capital–to–labor ratio.
D) the marginal product of labor.
Topic: The Production Process
Skill: Definition
Learning Outcome: Micro–17
135) When the marginal product of labor ________ the average product of labor, then the average product
is maximized.
A) equals
B) is greater than
C) is less than
D) The average product of labor is never maximized.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
59
136) A firm’s isocost line shifts parallel outward from the original isocost line as its
A) total cost for capital and labor increases.
B) total cost for capital and labor decreases.
C) total cost for capital increases and its total cost for labor decreases.
D) total cost for capital decreases and its total cost for labor increases.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
137) A firm’s isocost line shifts parallel inward from the original isocost line as its
A) total cost for capital and labor increases.
B) total cost for capital and labor decreases.
C) total cost for capital increases and its total cost for labor decreases.
D) total cost for capital decreases and its total cost for labor increases.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
138) 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 social learning, where the farmers based their decisions
on
A) the amount of fertilizer they used for their previously–grown maize crops.
B) the amount of fertilizer they were given by the government.
C) how much fertilizer their more successful neighbor farmers used.
D) the expected value of their future pineapple crops.
Topic: The Production Process: Economics in Practice
Skill: Fact
AACSB: Reflective Thinking
Learning Outcome: Micro–17
139) If the first worker produces five custom picture frames a day, and the second worker produces five
additional custom picture frames a day, it is clear that diminishing marginal returns have not yet set in.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
60
140) One worker produces 5 rocking chairs. To produce 10 rocking chairs it will be necessary to hire more
than two workers, if diminishing returns have set in.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
141) A production function shows the least amount that a firm will produce given the amount of labor
input.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
142) If the marginal product of labor is less than the average product of labor, then the average product of
labor is increasing.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
143) If the first worker produces ten custom picture frames a day, and the second worker produces
twelve additional custom picture frames a day, then diminishing marginal returns have not yet set in.
Topic: The Production Process
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–17
144) One worker produces 10 rocking chairs. If diminishing returns have already set in, a firm will need
to hire more than two workers to produce 20 rocking chairs.
Topic: The Production Process
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17