Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
Multiple Choice
8-1 Fill out the table and answer the question below.
Units of
Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
6
7
____
____
66
____
____
78
____
20
____
____
____
16
____
10
____
30
____
10
____
____
____
The average product of labor when 4 units of labor are employed is
a. 22.
b. 20.
c. 19.
d. 16.
8-2 Fill out the table and answer the question below.
Units of
Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
6
7
____
____
66
____
____
78
____
20
____
____
____
16
____
10
____
30
____
10
____
____
____
The marginal product of the fifth unit of labor is
a. 16.
b. 10.
c. 4.
d. −2.
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-3 Fill out the table and answer the question below.
Units of
Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
6
7
____
____
66
____
____
78
____
20
____
____
____
16
____
10
____
30
____
10
____
____
____
Diminishing returns begin with the
a. first unit of labor.
b. third unit of labor.
c. fourth unit of labor.
8-4 Fill out the table and answer the question below.
Units of
Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
6
7
____
____
66
____
____
78
____
20
____
____
____
16
____
10
____
30
____
10
____
____
____
Marginal product is negative when _____ units of labor are employed.
a. 5 units of labor are employed.
b. 6 units of labor are employed.
c. 7 units of labor are employed.
d. both b and c.
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-5 A production function measures the relation between
a. input prices and output prices.
b. the quantity of inputs and the quantity of output.
c. input prices and the quantity of output.
d. the quantity of inputs and input prices.
e. none of the above
8-6 A short-run production function assumes that
a. the level of output is fixed.
b. at least one input is a fixed input.
c. all inputs are fixed inputs.
d. both a and b
e. both b and c
8-7 Given the table below, if capital is fixed at two units, what is the marginal product of the fourth
unit of labor?
Units of Capital
1
2
3
Units
of
Labor
1
2
3
4
5
6
80
180
270
340
390
410
100
220
330
420
490
530
120
260
390
500
590
650
Amount of total output produced from various combinations of labor and capital.
a. 60
b. 80
c. 100
d. 420
e. none of the above
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-8 Given the table below, if capital is fixed at one unit, diminishing returns begin with the
Units of Capital
1
2
3
Units
of
Labor
1
2
3
4
5
6
80
180
270
340
390
410
100
220
330
420
490
530
120
260
390
500
590
650
Amount of total output produced from various combinations of labor and capital.
a. first unit of labor.
b. second unit of labor.
c. third unit of labor.
d. fourth unit of labor.
e. none of the above
8-9 Given the table below, if labor is fixed at three units, how much does the third unit of capital add
to total output?
Units of Capital
1
2
3
Units
of
Labor
1
2
3
4
5
6
80
180
270
340
390
410
100
220
330
420
490
530
120
260
390
500
590
650
Amount of total output produced from various combinations of labor and capital.
a. 60
b. 80
c. 110
d. 130
e. none of the above
8-10 If labor is fixed at 5 units, how much does the second unit of capital add to total output?
Units of Capital
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
1
2
3
Units
of
Labor
1
2
3
4
5
6
80
180
270
340
390
410
100
220
330
420
490
530
120
260
390
500
590
650
Amount of total output produced from various combinations of labor and capital.
a. 490
b. 390
c. 50
d. 100
e. none of the above
8-11 If average product is increasing, then marginal product
a. must be greater than average product.
b. must be less than average product.
c. must be increasing.
d. cannot be decreasing.
e. both a and c
8-12 Which of the following statements is FALSE?
a. A firm plans in the long run and operates in the short run.
b. In the short run, a firm can change some but not all of its inputs.
c. In the long run all inputs are variable.
d. In the short run all inputs are fixed.
8-13 Suppose you run a pizza shop and currently have two employees. If you hire a third employee,
your output of pizzas per day rises from 55 to 65. If you hire a fourth employee, output rises to 80
per day. A fifth and sixth employee would cause output to rise to 90 and 95 per day, respectively.
Pick the correct statement:
a. Diminishing returns set in with the hiring of the fourth worker.
b. Diminishing returns set in with the hiring of the fifth worker.
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
c. Diminishing returns set in with the hiring of the sixth worker.
d. Diminishing returns set have not yet set in because output is still increases.
8-14 For a short-run production function in which output is determined by the number of workers
utilized (capital stock held constant), which of the following is FALSE?
a. In general, when there are few workers the marginal product of labor will be increasing.
b. When the marginal product of labor is negative, total product is falling.
c. To determine the marginal product of labor, the capital stock must be held constant.
d. When diminishing returns set in, adding one more worker decreases output.
e. none of the above
8-15 Suppose that you run a house-painting company and currently have 2 workers painting a total of 4
houses per month. If you hire a third worker, 6 houses can be painted per month. If you hire a
fourth worker, 9 houses can be painted, and a fifth and sixth worker will increase the number of
houses painted to 13 and 15, respectively. Diminishing returns
a. set in when the fourth worker is hired.
b. set in when the fifth worker is hired.
c. set in when the sixth worker is hired.
d. have not yet set in because output is still increasing.
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-16
Units
of Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
____
____
300
____
290
____
125
____
____
____
100
____
____
20
____
In the table above, how much does the third unit of labor ADD to total output?
a. 100
b. 125
c. 150
d. 300
e. none of the above
8-17
Units
of Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
____
____
300
____
290
____
125
____
____
____
100
____
____
20
____
In the table above, diminishing returns
a. begin with the first unit of labor.
b. begin with the third unit of labor.
c. begin with the fourth unit of labor.
d. begin with the fifth unit of labor.
e. do not occur because output is positive for all levels of labor usage.
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-18
Units
of Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
____
____
300
____
290
____
125
____
____
____
100
____
____
20
____
In the table above, what is the average product of four units of labor?
a. 20
b. 60
c. 80
d. 100
e. 350
8-19
Units
of Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
____
____
300
____
290
____
125
____
____
____
100
____
____
20
____
In the table above, what is the maximum amount of output that can be produced with two
workers?
a. 50
b. 125
c. 150
d. 250
e. 320
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-20
Units
of Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
____
____
300
____
290
____
125
____
____
____
100
____
____
20
____
In the table above, what is the marginal product of the fifth unit of labor?
a. 20
b. 50
c. 80
d. −10
e. −30
8-21 Use the following table to answer the question below:
The amount of total output produced from various combinations of labor and capital.
Units of Capital
1
2
3
4
Units
of
Labor
1
2
3
4
5
50
110
150
170
160
120
260
360
430
480
160
360
510
630
710
180
390
560
690
790
If the capital stock is fixed at one unit, how much does the third unit of labor add to total output?
a. 20
b. 40
c. 60
d. 80
e. none of the above
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-22 Use the following table to answer the question below:
The amount of total output produced from various combinations of labor and capital.
Units of Capital
1
2
3
4
Units
of
Labor
1
2
3
4
5
50
110
150
170
160
120
260
360
430
480
160
360
510
630
710
180
390
560
690
790
If the capital stock is fixed at one unit, diminishing returns begin with the
a. first unit of labor.
b. second unit of labor.
c. third unit of labor.
d. fourth unit of labor.
e. fifth unit of labor.
8-23 Use the following table to answer the question below:
The amount of total output produced from various combinations of labor and capital.
Units of Capital
1
2
3
4
Units
of
Labor
1
2
3
4
5
50
110
150
170
160
120
260
360
430
480
160
360
510
630
710
180
390
560
690
790
If the capital stock is fixed at four units and there are three units of labor, what is the average
product of labor?
a. 50
b. 140
c. 157.5
d. 170
e. none of the above
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-24 Use the following table to answer the question below:
The amount of total output produced from various combinations of labor and capital.
Units of Capital
1
2
3
4
Units
of
Labor
1
2
3
4
5
50
110
150
170
160
120
260
360
430
480
160
360
510
630
710
180
390
560
690
790
If labor is fixed at three units, how much does the second unit of capital add to total output?
a. 100
b. 150
c. 210
d. 360
e. none of the above
8-25 The marginal product of labor
a. measures how output changes as the wage rate changes.
b. is less than the average product of labor when the average product of labor is decreasing.
c. is negative when adding another unit of labor decreases output.
d. both a and b
e. both b and c
8-26 Use the following table to answer the question below:
The amount of total output produced from various combinations of labor and capital.
Units of Capital
1
2
3
4
Units
of
Labor
1
2
3
4
5
20
38
53
63
68
36
68
94
112
120
48
88
122
148
164
53
94
133
164
184
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
If capital is fixed at three units, how much does the fourth unit of labor add to total output?
a. 16
b. 28
c. 34
d. 36
e. none of the above
8-27 Use the following table to answer the question below:
The amount of total output produced from various combinations of labor and capital.
Units of Capital
1
2
3
4
Units
of
Labor
1
2
3
4
5
20
38
53
63
68
36
68
94
112
120
48
88
122
148
164
53
94
133
164
184
If the amount of labor used increases from three to four units, the marginal product of the second
unit of capital
a. increases by 8 units.
b. increases by 49 units.
c. decreases by 14 units.
d. decreases by 49 units.
e. none of the above
8-28 Use the following table to answer the question below:
The amount of total output produced from various combinations of labor and capital.
Units of Capital
1
2
3
4
Units
of
Labor
1
2
3
4
5
20
38
53
63
68
36
68
94
112
120
48
88
122
148
164
53
94
133
164
184
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
Which of the following input combinations can produce the same level of output?
a. 4K, 2L and 3K, 2L
b. 3K, 2L and 2K, 3L
c. 2K, 3L and 4K, 2L
d. all of the above
8-29 Use the following table to answer the question below:
The amount of total output produced from various combinations of labor and capital.
Units of Capital
1
2
3
4
Units
of
Labor
1
2
3
4
5
20
38
53
63
68
36
68
94
112
120
48
88
122
148
164
53
94
133
164
184
If the amount of capital increases from 3 to 4 units, the marginal product of the fourth unit of
labor
a. decreases by 3 units.
b. increases by 8 units.
c. increases by 5 units.
d. decreases by 12 units.
e. none of the above
8-30 Use the following table to answer the question below:
The amount of total output produced from various combinations of labor and capital.
Units of Capital
1
2
3
4
Units
of
Labor
1
2
3
4
5
20
38
53
63
68
36
68
94
112
120
48
88
122
148
164
53
94
133
164
184
Diminishing marginal productivity
a. occurs when the marginal product curve begins to slope downward.
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
b. means that adding one more unit of the variable input will reduce total product.
c. occurs eventually because each additional unit of the variable unit has, on average, fewer
units of the fixed input with which to work.
d. both a and c
e. both b and c
8-31 If marginal product is decreasing, then it must be the case that
a. average product is decreasing.
b. average product is greater than marginal product.
c. average product is less than marginal product.
d. both a and c
e. none of the above.
8-32 If a firm is producing a given level of output in a technically efficient manner, then it must be the
case that
a. this is the lowest cost method of producing that output.
b. each input is producing its maximum marginal product.
c. this output level is the most that can be produced with the given levels of inputs.
d. both a and c
e. all of the above
8-33 If a firm is producing a given level of output in an economically efficient manner, then it must be
the case that
a. this is the lowest cost method of producing that output.
b. each input is producing its maximum marginal product.
c. this output level is the most that can be produced with the given level of inputs.
d. both a and c
e. none of the above
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-34 A firm is using a single variable input, labor, with a given amount of a fixed input, capital. If the
level of capital is decreased,
a. the total product curve of labor curve shifts downward.
b. the average product curve of labor curve shifts downward.
c. the marginal product curve of labor shifts downward.
d. all of the above
e. none of the above
8-35 Diminishing returns refers to the decrease in
a. profit that results from increases in output.
b. average total cost that results from decreases in input prices.
c. average product that results from increases in the variable input.
d. marginal product that results from increases in the variable input.
e. long-run average cost that results from increases in output.
8-36 Given the table below, as the number of workers increases from 10 to 15, output per worker
Number of
Workers
Total
Product
Average
Product
Marginal
Product
5
______
28
______
10
______
______
30
15
420
______
______
20
______
______
22
a. increases from 290 to 420
b. increases from 28 to 29
c. decreases from 29 to 28
d. decreases from 30 to 26
e. none of the above
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-37 Given the table below, how much does the 13th worker add to total output?
Number of
Workers
Total
Product
Average
Product
Marginal
Product
5
______
28
______
10
______
______
30
15
420
______
______
20
______
______
22
a. 28 units
b. 29 units
c. 130 units
d. 420 units
e. none of the above
8-38 Given the table below, diminishing returns begin with the
Number of
Workers
Total
Product
Average
Product
Marginal
Product
5
______
28
______
10
______
______
30
15
420
______
______
20
______
______
22
a. 1st worker.
b. 5th worker.
c. 10th worker.
d. 11th worker.
e. 16th worker.
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-39 Given the table below, the maximum amount that can be produced using 20 workers is
Number of
Workers
Total
Product
Average
Product
Marginal
Product
5
______
28
______
10
______
______
30
15
420
______
______
20
______
______
22
a. 442 units.
b. 530 units.
c. 22 units.
d. 420 units.
e. 26.5 units.
8-40 A firm’s cost of production is affected by changes in
a. the available technology.
b. input prices.
c. profits.
d. both a and b
e. both b and c
8-41 A short-run cost function assumes that
a. the level of output is fixed.
b. at least one input is fixed in supply.
c. all inputs are fixed in supply.
d. both a and b
e. both b and c
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-42 A fixed cost is
a. the cost of any input with a fixed price per unit.
b. a cost which increases in a fixed proportion as output increases.
c. a cost the firm must pay even if output is zero.
d. both b and c
e. all of the above
8-43 Given the table below, what is the total fixed cost when 400 units of output are produced?
Output
Total
Cost
Total
Fixed
Cost
Total
Variable
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
100
200
300
400
560
_____
_____
_____
_____
_____
_____
_____
60
_____
_____
_____
_____
_____
_____
_____
_____
_____
4.00
_____
_____
_____
_____
7.00
_____
4.00
_____
_____
a. $500
b. $2000
c. $3500
d. $5000
e. none of the above
8-44 Given the table below, what is average total cost when 200 units of output are produced?
Output
Total
Cost
Total
Fixed
Cost
Total
Variable
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
100
200
300
400
560
_____
_____
_____
_____
_____
_____
_____
60
_____
_____
_____
_____
_____
_____
_____
_____
_____
4.00
_____
_____
_____
_____
7.00
_____
4.00
_____
_____
a. $2.30
b. $2.50
c. $4.00
d. $4.80
e. none of the above
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-45 Given the table below, what is average fixed cost when 300 units of output are produced?
Output
Total
Cost
Total
Fixed
Cost
Total
Variable
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
100
200
300
400
560
_____
_____
_____
_____
_____
_____
_____
60
_____
_____
_____
_____
_____
_____
_____
_____
_____
4.00
_____
_____
_____
_____
7.00
_____
4.00
_____
_____
a. $0.60
b. $3.00
c. $160
d. $500
e. none of the above
8-46 Given the table below, what is the marginal cost of the 250th unit of output?
Output
Total
Cost
Total
Fixed
Cost
Total
Variable
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
100
200
300
400
560
_____
_____
_____
_____
_____
_____
_____
60
_____
_____
_____
_____
_____
_____
_____
_____
_____
4.00
_____
_____
_____
_____
7.00
_____
4.00
_____
_____
a. $0.14
b. $2.40
c. $4.00
d. $7.40
e. none of the above
Chapter 8: PRODUCTION AND COST IN THE SHORT RUN
8-47 Average fixed cost
a. increases as output increases.
b. decreases as output increases.
c. increases if marginal cost is increasing.
d. increases if marginal cost is greater than average fixed cost.
8-48 Marginal cost
a. measures how total cost changes when input prices change.
b. measures how total cost changes when one more unit of output is produced.
c. is less than average cost when average cost is decreasing.
d. both a and b
e. both b and c
8-49
Suppose that the firm’s only variable input is labor. When 50 workers are used, the average
product of labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total
cost of the fixed input is $500. What is average variable cost?
a. $0.63
b. $1.60
c. $3.20
d. $10.00
e. none of the above
8-50 Suppose that the firm’s only variable input is labor. When 50 workers are used, the average
product of labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total
cost of the fixed input is $500. What is the marginal cost?
a. $0.63
b. $0.94
c. $1.60
d. $3.20
e. none of the above