Deck 4: Production, Costs, and Demand Analysis

Question 1

The total product curve may initially show output increasing at an increasing rate as more labour is hired because of the:

A)declining quality of the labor force.
B)principle of comparative advantage.
C)law of diminishing marginal returns.
D)increase in marginal physical product.

Answer 1

increase in marginal physical product.

Question 2

If labour is the only variable resource and its marginal physical product falls as more workers are hired:

A)the law of diminishing marginal returns is at work.
B)marginal cost is rising.
C)average cost may still be declining.
D)average physical product may still be rising.

Answer 2

the law of diminishing marginal returns is at work.

Question 3

When both average and total product are greater than zero, and marginal product equals average product, then total product:

A)is at a maximum.
B)is positive and rising.
C)is falling.
D)is negative but rising.

Answer 3

is positive and rising.

Question 4

Costs incurred only when production occurs are known as:

A)explicit costs.
B)fixed costs.
C)variable costs.
D)technological expenses.

Question 5

The law of diminishing marginal returns is encountered as increasing amounts of labour are hired because:

A)as production rises, the additional labor hired is less and less skilled.
B)experienced workers are hired before the less skilled.
C)each extra worker hired decreases the amounts of land and capital per worker, so the work place becomes more congested and managerial control becomes more difficult.
D)as more and more is produced, selling it requires cutting prices.

Question 6

Which of the following is irrelevant for rational decision making?

A)total variable cost (tvc)
B)explicit cost.
C)average fixed cost (afc).
D)marginal cost (mc).

Question 7

Diminishing marginal returns are most compatible with:

A)economies of scale.
B)advantages from specialization.
C)positively-sloped marginal cost curves
D)depreciation of the capital stock.

Question 8

If average variable costs fall as output grows:

A)marginal costs must also be declining.
B)fixed cost must also be declining.
C)total cost must also be declining.
D)average cost must be below average variable cost.

Question 9

In economic theory the costs of a firm

A)tend to be less than the everyday use of the term costs would suggest
B)includes implicit as well as explicit outlays
C)always decline as more output is produced
D)are usually defined in such a way that profits will be larger than the

Question 10

The average total costs of the firm as defined in standard economic theory

A)are the sum of the fixed and any variable costs divided by the number of units of labour input
B)are the sum of the fixed and any variable costs
C)are the sum of the average fixed and the total variable costs
D)are the sum of the fixed and variable costs divided by the number of units of output

Question 11

The short run as the term is used in connection with the theory of the firm is a period of time:

A)too short for the firm to vary all its inputs
B)no more than a week
C)long enough for the firm to vary the quantity of all its inputs
D)in which the fixed costs are zero

Question 12

According to the principle of diminishing marginal physical productivity, in the short run

A)as output increases, costs per unit of output must eventually decline
B)marginal product will decrease continually as output is expanded
C)as output is increased, the quantity of inputs needed to produce additional units of output will increase, causing costs per unit of output to increase
D)total output will become negative once marginal product begins to decline

Question 13

Economies of scale

A)set in as soon as diminishing marginal physical productivity is experienced
B)are usually considered to be a phenomenon of the long run
C)are not always available in the short run
D)help ensure that industries will be competitive rather than monopolized

Question 14

Marginal costs and average variable costs are equal when

A)average variable cost is a maximum
B)average variable cost is rising
C)average variable cost is falling
D)average variable cost is a minimum

Question 15

Theory of demand examines the behaviour of the--------

A)Consumer
B)Producer
C)Firm
D)Industry

Question 16

Utility is the concept which is:

A)Objective
B)Subjective
C)Both
D)None

Question 17

Change in utility resulting from one unit change in consumption is called:

A)Total Utility
B)Extra Utility
C)Marginal Utility
D)Average Utility

Question 18

Saturation point is the point where:

A)TU = 0
B)MU = 0
C)MU is +ve
D)TU = 1