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Chapter 22 The Firm: Cost and Output Determination 331
55) As the amount of a variable input increases, while all other inputs are held constant, total
product will
A) always increase. B) always decrease.
C) initially decrease and then increase. D) initially increase and then decrease.
56) If the average product of 20 workers is 100 bushels of wheat and the average product of 21
workers of wheat is 99 bushels of wheat, then the marginal product of the 21st worker was
A) 1 bushel of wheat. B) 5 bushels of wheat.
C) 79 bushels of wheat. D) 99 bushels of wheat.
57) Marginal physical product is
A) the change in total output from using an additional unit of one variable input, holding
other inputs constant.
B) the change in total output from using an additional unit of all variable inputs.
C) the total output divided by the number of units of the variable input.
D) the change in total output divided by the number of units of the variable input, holding
constant all other inputs.
58) The change in total product occurring when a variable input is increased and all other inputs are
held constant is
A) average total cost. B) marginal cost.
C) average physical product. D) marginal physical product.
59) The physical output that is due to the addition of one more unit of a variable factor of
production is
A) average total cost. B) marginal cost.
C) average physical product. D) marginal physical product.
60) As the quantity of labor increases while the amount of other inputs are held constant, marginal
product of labor will
A) increase continuously. B) decrease continuously.
C) initially decrease and then increase. D) initially increase and then decrease.
61) Recently Apple Computer developed Apple s new iTunes Music Store, which offers more than
200,000 songs from five major record labels, for use with Apple s iPod and iMac. More than a
million songs were downloaded the first week alone! In economic terms, CEO Steve Jobs helped
convert capital and labor inputs into products consumers use. Any activity that results in the
conversion of resources into products that can be used in consumption is
A) not profitable. B) a start up venture.
C) demand. D) production.
Average Physical
Labor Output Product Marginal Product
1 10
2 12
3 15
4 52
5 9
62) Using the above table, the total product and average physical product when 3 workers are
employed are
A) 36 and 12, respectively. B) 39 and 13, respectively.
C) 37 and 27, respectively. D) 40 and 10, respectively.
63) Using the above table, the total product and average physical product when 5 workers are
employed are
A) 61 and 21, respectively. B) 62 and 13, respectively.
C) 62 and 15, respectively. D) 61 and 12.2, respectively.
64) Using the above table, the average physical product and marginal physical w hen 4 workers are
employed are
A) 13 and 13, respectively. B) 13 and 14, respectively.
C) 13 and 9, respectively. D) 14 and 13, respectively.
65) Using the above table, the marginal product of the 2nd worker is
A) 12. B) 14. C) 15. D) 13.
66) Using the above table, the marginal product of the 4th worker is
A) 12. B) 13. C) 14. D) 15.
Use the information from the below table to answer following question(s).
Input of Total
Labor Product
0 0
1 20
2 50
3 80
4 105
5 125
6 140
7 150
67) In the above table, the average product for 5 units of labor is
A) 20.0. B) 22.5. C) 25.0. D) 15.0.
68) In the above table, the average product for 3 units of labor is
A) 30.0. B) 26.7. C) 26.3. D) 25.0.
69) In the above table, the marginal product of the fourth worker is
A) 30. B) 25. C) 20. D) 15.
70) In the above table, the marginal product of the sixth worker is
A) 10. B) 25. C) 20. D) 15.
71) When total product is increasing at an increasing rate, marginal product is
A) positive and increasing. B) positive and decreasing.
C) constant. D) negative.
72) When total product is increasing at a decreasing rate, marginal product is
A) positive and increasing. B) positive and decreasing.
C) constant. D) negative.
73) If four laborers were hired and we discovered that we could produce 88 units of production,
what is the average physical product of labor?
A) 44 B) 352 C) 11 D) 22
74) At Phil s Hot Dog Stand, we found the following:
4 laborers produced 66 hot dogs
5 laborers produced 76 hot dogs
6 laborers produced 84 hot dogs
7 laborers produced 88 hot dogs
What was the marginal physical product of the sixth laborer?
A) 10 hot dogs B) 8 hot dogs C) 6 hot dogs D) 4 hot dogs
75) At Phil s Hot Dog Stand, we found the following:
4 laborers produced 66 hot dogs
5 laborers produced 76 hot dogs
6 laborers produced 84 hot dogs
7 laborers produced 88 hot dogs
What was the marginal physical product of the seventh laborer?
A) 8 hot dogs
B) 10 hot dogs
C) 4 hot dogs
D) none of the above due to insufficient information
76) The change in output caused by a one unit change in labor is referred to as the
A) compounded physical product of labor. B) average physical product of labor.
C) marginal physical product of labor. D) total physical product of labor.
77) Which of the following statement is correct?
A) When Marginal Product is greater than Average Physical Product, Average Physical
Product is increasing.
B) When Marginal Product is greater than Average Physical Product, Average Physical
Product is decreasing.
C) When Marginal Product is greater than Average Physical Product, Average Physical
Product is equal to Total Product.
D) When Marginal Product is greater than Average Physical Product, Total Product is
increasing at a decreasing rate.
78) The average product of labor is equal to
A) total product divided by quantity of labor.
B) change in total product divided by quantity of labor.
C) total product divided by change in quantity of labor.
D) change in total product divided by change in quantity of labor.
Quantity of Total Average Physical Marginal Physical
Workers Product Product Product
0 0
1 3
2 7
3 12
4 16
5 18
6 18
79) In the above table, the average physical product of the 3rd worker is
A) 5. B) 4. C) 3. D) 12.
80) In the above table, the marginal physical product of the 3rd worker is
A) 5. B) 4. C) 3. D) 12.
81) In the above table, the average physical product of the 6th worker is
A) 5. B) 4. C) 3. D) 0.
82) In the above table, the marginal physical product of the 6th worker is
A) 5. B) 4. C) 3. D) 0.
83) In the above table, the average physical product of 2 workers and the marginal physical product
of the 2nd worker is
A) 2; 2. B) 4; 1. C) 3.5; 3.5. D) 3.5; 4.
84) In the above table, the average physical product for 5 workers and the marginal physical
product of the 5th worker is
A) 3.6; 2. B) 0.72; 1. C) 2; 0.6. D) 16; 2.
85) The production function illustrates the amount of total physical product that can be produced
with a given set of
A) inputs. B) outputs.
C) marginal product. D) marginal input.
338 Miller Economics Today, 16th Edition
Quantity of Total Average Marginal
Labor Product Product Product
1 320
2 335
3 338
4 320
86) Refer to the above table. What does total product equal when 2 units of labor are used?
A) 320 B) 335 C) 350 D) 670
87) Refer to the above table. What does total product equal when 3 units of labor are used?
A) 336 B) 1008 C) 338 D) 3
88) Refer to the above table. What does total product equal when 4 units of labor are used?
A) 1328 B) 332 C) 320 D) 960
89) Describe the concept of the production function. What happens to the production function
when a firm becomes less efficient, so that it now requires more labor to produce the same
amount of output as before?
90) Explain how you can calculate average physical product and marginal physical product from
information on total physical product and variable input.
91) What is a production function?
92) Graphically, what happens to the production function if a firm uses automation to raise the
amount of output per worker? Explain.
340 Miller Economics Today, 16th Edition
22.3 Diminishing Marginal Product
1) Refer to the above figure. The curve reflects
A) the law of diminishing marginal product in labor.
B) the law of increasing marginal product in labor.
C) the law of diminishing marginal product in capital.
D) the law of increasing marginal product in capital.
2) Phil found that as he continued to crowd laborers into his hot dog stand, the extra output he
was receiving from each additional laborer was beginning to fall off. This is an example of the
A) law of increasing opportunities. B) law of demand.
C) law of diminishing marginal utility. D) law of diminishing product.
3) The marginal productivity of labor will eventually decrease as more workers are employed
because
A) average product is increasing.
B) total product is decreasing.
C) the amount of capital will also be increasing.
D) on the average each worker will have fewer inputs to work with.
4) If we add successive laborers to work a given amount of land on a wheat farm, eventually
A) average total cost will fall to zero.
B) the increases in wheat harvested will rise at a constant rate.
C) the increases in wheat harvested will get smaller and smaller.
D) the increases in wheat harvested will get larger and larger.
5) After some point successive equal increases in a variable factor of production, when added to a
fixed amount of inputs, will result in smaller increases in output. This is known as
A) the long run.
B) the law of diminishing marginal product.
C) marginal physical product.
D) short run average cost.
6) The marginal product of labor may increase rapidly initially as more
A) workers are able to specialize.
B) total product is decreasing.
C) the amount of other inputs is held constant.
D) workers will get crowded in a fixed factory.
7) As successive equal increases in a variable factor of production are added to fixed factors of
production, there will be a point beyond which the extra product that can be attributed to each
additional unit of the variable factor of production will decline. This is known as the law of
A) diminishing total product. B) diminishing average product.
C) diminishing marginal product. D) decreasing product.
8) The law of diminishing marginal product indicates that
A) average product will eventually decrease.
B) marginal product will eventually decrease.
C) total product will eventually decrease.
D) resources are inefficient.
9) The observation that beyond some point, successive increases in a variable factor of production
added to a fixed factor of production lead to smaller and smaller increases in output is
A) the law of marginal utility.
B) the law of averages.
C) the law of diminishing marginal product.
D) the law of opportunity costs.
10) The law of diminishing marginal product states that
A) output will continue to increase indefinitely if more variable factors of production are
added to an existing stock of fixed factors.
B) successive equal sized increases in labor, when added to fixed factors of production, will
result in smaller increases of output.
C) a doubling all inputs will double output.
D) variable costs tend to decrease with output.
11) The law of diminishing marginal product is a statement
A) that concerns changes in variable input and changes in output.
B) that concerns the long run.
C) that concerns changes in profits.
D) that relates to plant size.
12) The point of saturation occurs when a firm
A) has total returns equal to zero.
B) first encounters negative marginal product.
C) first experiences positive marginal product.
D) maximizes its total returns.
13) What happens at a firm spoint of saturation?
A) For the first time, hiring an additional worker decreases total product.
B) Workers cannot take on any additional tasks without working overtime hours.
C) The market for a firm s output has been saturated and sales fall to zero.
D) The firm s total costs exceed its revenues.
Quantity of Total Average Marginal
Labor Product Product Product
1 22 22 22
2 52 26 30
3 81 27 29
4 100 25 19
5 115 23 15
6 126 21 11
14) Refer to the above table. At what quantity of labor does the law of diminishing marginal
product set in?
A) After 1 unit. B) After 2 units. C) After 3 units. D) After 6 units.
15) Refer to the above table. At what quantity of labor is the average product of labor maximized?
A) 1 unit. B) 2 units. C) 3 units. D) 6 units.
16) Refer to the above table. At what quantity of labor does it become obvious that the law of
diminishing marginal product has set in?
A) worker number 3 B) worker number 4
C) worker number 21 D) worker number 5
17) As long as marginal product of labor exceeds the average product of labor, then average
product of labor
A) must fall. B) must rise.
C) will stay unchanged. D) will be at its maximum value.
18) If marginal product is zero, we know that
A) total product is also zero. B) average product is also zero.
C) total output is maximized. D) average product is constant.
19) Total product will start to decrease
A) at the quantity where the law of diminishing returns starts.
B) when average physical product decreases.
C) when marginal physical product increases.
D) when marginal physical product becomes negative.
20) Suppose the total output curve increases at an increasing rate for workers 1 50, increases at a
decreasing rate from workers 51 101, and decreases beyond 101 workers. We would know that
A) marginal product is increasing from workers 1 50 and then becomes negative after worker
51.
B) marginal product is increasing from workers 1 50, decreasing after 51 workers, and
becomes negative after the 101st worker.
C) marginal product is decreasing from workers 1 101, becoming negative at the 102nd
worker.
D) marginal product is increasing from workers 1 50, constant from workers 51 to 101, and is
decreasing after that.
Quantity of Total Average Physical Marginal Physical
Workers Product Product Product
0 0
1 3
2 7
3 12
4 16
5 18
6 18
21) In the above table, the law of diminishing marginal product sets in after the ________ worker.
A) first B) sixth C) third D) fourth
22) The observation that after some point, successive equal size increases in a variable factor of
production, such as labor, added to fixed factors of production, will result in smaller increases in
output is the
A) law of diminishing marginal product. B) streamlining production function.
C) consumer equilibrium. D) theory of increasing marginal utility.
23) When total product is decreasing, marginal product is
A) positive and increasing. B) positive and decreasing.
C) constant. D) negative.
24) The law of diminishing marginal product shows the relationship
A)
b
etween accounting and economic profits.
B)
b
etween short run and long run outputs of a firm.
C)
b
etween inputs and outputs for a firm in the short run.
D)
b
etween inputs and outputs for a firm in the long run.
25) Suppose the manager of a restaurant notices that when she has too many waiters on the floor for
a shift that the waiters get in each other s way and fewer dinners are served. This is an example
of
A) diminishing marginal product. B) diminishing marginal utility.
C) diminishing marginal workforce. D) diminishing marginal inputs.
26) What is the law of diminishing marginal product?
27) Graphically, what does the marginal product curve for a labor input look like? Explain in
words.
28) What is the law of diminishing marginal product? Is it a realistic concept for describing the real
world? Explain.
29) Diminishing marginal product is a basic law because new workers are always less qualified
than the existing workers. Do you agree or disagree? Explain.
22.4 Short Run Costs to the Firm
1) The firm s short run costs contain
A) only variable costs. B) only fixed costs.
C)
b
oth variable and fixed costs. D) only opportunity costs.
2) Which of the following is correct?
A) TC TFC TVC B) TC TFC TVC
C) TC TFC * TVC D) TC TFC / TVC
3) Suppose that a firm is currently producing 1,000 units of output. At this level of output, AVC is
$1 per unit, and TFC is $500. What is the firm s TC?
A) $1,500 B) $1,000 C) $501 D) $499
4) Suppose that a firm is currently producing 500 units of output. At this level of output, TVC
$1,000 and TFC $2,500. What is the firms ATC?
A) $2 B) $5 C) $7 D) $10
5) Suppose that when the level of output for the firm increases from 100 to 110 units, its variable
costs increase from $500 to $700. What is the firm s marginal cost?
A) $5 B) $7 C) $20 D) $200
6) Which one of the following statements is FALSE?
A) TC TFC TVC B) ATC AFC AVC
C) AFC TFC divided by Q D) MC TC divided by Q
7) Assume it takes 10 units of labor to produce 4 units of output. When the price of labor is $6 per
unit and fixed costs equal $60, what is the total cost of those 4 units of output?
A) $60 B) $70 C) $120 D) $84
8) Short run total cost is defined as
A) the sum of marginal cost and total variable cost.
B) price of labor per unit multiplied by the number of labor units.
C) total fixed cost plus total variable cost.
D) total capital cost only.
9) In economics, a fixed cost is a cost that
A) is present only in the short run.
B) goes up as the level of output goes up.
C) goes down as the level of output goes up.
D) does not vary with the level of output.
10) Which of the following would NOT be considered a fixed cost of production?
A) Wages paid to labor
B) The opportunity cost of capital
C) Interest payments on a loan
D) Insurance payments on plant and equipment
11) All of the following are most likely to be fixed costs EXCEPT the cost relating to
A) insurance. B) taxes. C) rent. D) packaging.
12) With a given plant size, an increase in output will NOT result in an increase in
A) total cost. B) average fixed cost.
C) total fixed cost. D) average variable cost.
13) When output is 100 units, the firm s total fixed cost is $500. What will this firm s total fixed cost
be if output doubles to 200 units?
A) $1,000
B) $500
C) $250
D) Can t tell from the information provided
14) Which of the following statements about a firm s short run variable costs is correct?
A) They increase as the level of output decreases.
B) They typically include the cost of workers wages.
C) They include the costs of plant and equipment.
D) They are always a greater expense than are fixed costs.
15) As a firm increases the level of output that it produces, short run average fixed cost
A) rises and then falls.
B) remains constant since fixed costs are constant.
C) decreases.
D) decreases up to a particular level of output and then increases.
16) Average fixed costs will
A) rise as output rises. B) fall then rise as output rises.
C) rise then fall as output rises. D) fall as output rises.
17) When Super Stuff Corporation produces 5,000 units, total costs equal $150,000 and total variable
costs equal $75,000. At this level of output, what is Super Stuff s average fixed cost?
A) $75,000 B) $30 C) $225,000 D) $15
18) In the short run, average total cost is
A) higher than average variable cost.
B) equal to average variable cost.
C) less than average variable cost.
D) sometimes higher and sometimes lower than average variable cost.
