Question 1

The total physical product for any given amount of the variable factor is the sum of all the marginal physical products up to that point.

Accepted Answer

A) True 
 B)False  TRUE

Question 2

Using a product of your choosing, identify the main fixed and variable costs of production.

Accepted Answer

The answer will depend on the example chosen. Fixed costs may include rent of factory or machinery, a manger's salary and the cost of some office functions (i.e. any cost that does not vary with output). Variable costs may include workers' wages, raw material costs and transporting products to market (i.e. any cost that does vary with output).

Question 3

Why does the marginal product curve pass through the top of the average physical product curve?

Accepted Answer

To the left of this point the MPP is above the APP. Thus extra workers are producing more than the average. They have the effect of pulling the average up. The APP curve must therefore be rising. To the right of this point the MPP is below the APP. Extra workers produce less than the average and thus pull the average down. The APP must be falling.

Question 4

Which of the following assumptions do we make when constructing long- run cost curves?

Accepted Answer

A)  Factor prices are given. 
B)  There are no fixed factors or production. 
C)  The state of technology is given. 
D)  All of the above 
A)  Factor prices are given. 
B)  There are no fixed factors or production. 
C)  The state of technology is given. 
D)  All of the above

Question 5

By 'diseconomies of scale' economists mean bureaucracy.

Accepted Answer

A) True 
 B)False

Question 6

LRATC curves are always downward- sloping.

Accepted Answer

A) True 
 B)False

Question 7

All marginal costs are variable.

Accepted Answer

A) True 
 B)False

Question 8

The 'minimum efficient scale' of operations refers to a scale of output at which

Accepted Answer

A)  diseconomies of scale are at the lowest point. 
B)  economies of scale are just exhausted. 
C)  managerial diseconomies are just offset by technical economies of scale. 
D)  none of the above occurs 
A)  diseconomies of scale are at the lowest point. 
B)  economies of scale are just exhausted. 
C)  managerial diseconomies are just offset by technical economies of scale. 
D)  none of the above occurs

Question 9

We can define total costs as

Accepted Answer

A)  TFC + 3MC 
B)  TFC + TVC 
C)  ATC × Q 
D)  all of the above 
A)  TFC + 3MC 
B)  TFC + TVC 
C)  ATC × Q 
D)  all of the above

Question 10

Which of the following represents the point at which diminishing returns will set in?

Accepted Answer

A)  When AC begins to rise 
B)  When MC begins to rise 
C)  When MC is falling 
D)  When AC = MC 
E)  When AC is falling 
A)  When AC begins to rise 
B)  When MC begins to rise 
C)  When MC is falling 
D)  When AC = MC 
E)  When AC is falling

Question 11

When counting the cost of a product to the firm making it, we should value inputs at their

Accepted Answer

A)  implicit costs. 
B)  accounting costs. 
C)  historic costs. 
D)  replacement costs. 
A)  implicit costs. 
B)  accounting costs. 
C)  historic costs. 
D)  replacement costs.

Question 12

With L representing the quantity of labour, which of the following is the formula for the marginal physical productivity of labour?

Accepted Answer

A)  TPP/L 
B)  Change in L/Change in TPP 
C)  L/TPP 
D)  Change in TPP/Change in L 
E)  Change in TPP/L 
A)  TPP/L 
B)  Change in L/Change in TPP 
C)  L/TPP 
D)  Change in TPP/Change in L 
E)  Change in TPP/L

Question 13

Which of the following is a correct statement about the relationship between average product (AP) and marginal product (MP)?

Accepted Answer

A)  If MP is declining then AP is negative. 
B)  If AP is at a maximum, then MP is also. 
C)  If AP exceeds MP, then AP is falling. 
D)  If AP = MP, then total product is at a maximum. 
A)  If MP is declining then AP is negative. 
B)  If AP is at a maximum, then MP is also. 
C)  If AP exceeds MP, then AP is falling. 
D)  If AP = MP, then total product is at a maximum.

Question 14

The following table provides information about the relationship between a firm's output and its factors of production in the short run:
   Which one of the following statements describes the situation in this firm?

Accepted Answer

A)  There are constant returns to scale. 
B)  There are diminishing marginal returns. 
C)  There are increasing returns to scale. 
D)  There are diminishing returns to scale. 
E)  There are increasing marginal returns. 
A)  There are constant returns to scale. 
B)  There are diminishing marginal returns. 
C)  There are increasing returns to scale. 
D)  There are diminishing returns to scale. 
E)  There are increasing marginal returns.

Question 15

If firm X benefits from research and development conducted by other firms in the industry, then this is an example of an external economy of scale for firm X.

Accepted Answer

A) True 
 B)False

Question 16

If marginal cost is above average cost, then

Accepted Answer

A)  AVC is constant. 
B)  AVC is decreasing. 
C)  AC is increasing. 
D)  AC is decreasing. 
A)  AVC is constant. 
B)  AVC is decreasing. 
C)  AC is increasing. 
D)  AC is decreasing.

Question 17

In the short run, by definition, at least one factor is fixed in supply. The total cost to the firm of these factors is thus fixed with respect to time.

Accepted Answer

A) True 
 B)False

Question 18

If a doubling of inputs leads to a doubling of output, the firm is said to experience decreasing returns to scale.

Accepted Answer

A) True 
 B)False

Question 19

By 'diseconomies of scale' economists mean

Accepted Answer

A)  bureaucracy. 
B)  diminishing returns. 
C)  when costs increase as the scale of output increases. 
D)  indivisibilities. 
A)  bureaucracy. 
B)  diminishing returns. 
C)  when costs increase as the scale of output increases. 
D)  indivisibilities.

Question 20

Economies of scale explain the falling part of a firm's SRATC curve.

Accepted Answer

A) True 
 B)False

Exam 9: Costs of Production

The total physical product for any given amount of the variable factor is the sum of all the marginal physical products up to that point.

Using a product of your choosing, identify the main fixed and variable costs of production.

Why does the marginal product curve pass through the top of the average physical product curve?

Which of the following assumptions do we make when constructing long- run cost curves?

By 'diseconomies of scale' economists mean bureaucracy.

LRATC curves are always downward- sloping.

All marginal costs are variable.

The 'minimum efficient scale' of operations refers to a scale of output at which

We can define total costs as

Which of the following represents the point at which diminishing returns will set in?

When counting the cost of a product to the firm making it, we should value inputs at their

With L representing the quantity of labour, which of the following is the formula for the marginal physical productivity of labour?

Which of the following is a correct statement about the relationship between average product (AP) and marginal product (MP)?

The following table provides information about the relationship between a firm's output and its factors of production in the short run: Which one of the following statements describes the situation in this firm?

If firm X benefits from research and development conducted by other firms in the industry, then this is an example of an external economy of scale for firm X.

If marginal cost is above average cost, then

In the short run, by definition, at least one factor is fixed in supply. The total cost to the firm of these factors is thus fixed with respect to time.

If a doubling of inputs leads to a doubling of output, the firm is said to experience decreasing returns to scale.

By 'diseconomies of scale' economists mean

Economies of scale explain the falling part of a firm's SRATC curve.

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