Deck 6: Production and Business Organization

Question 1

The production function specifies which of the following:

A)relates dollar inputs to dollar outputs.
B)indicates the best way to combine outputs in the marketplace.
C)indicates the best level of output to produce.
D)describes a relationship between inputs and output in a production process.
E)relates marginal products to factor prices.

Answer 1

describes a relationship between inputs and output in a production process.

Question 2

The marginal product of labor is the:

A)output which it could produce unaided by machinery or other factors of production.
B)extra revenue which a firm will get by selling the output of one additional worker.
C)amount of extra output that is produced when one extra worker is added to a fixed amount of other factors.
D)amount of extra output that is produced when one worker is added and other factors of production are increased proportionately.
E)none of the above.

Answer 2

amount of extra output that is produced when one extra worker is added to a fixed amount of other factors.

Question 3

The employment of which of the following inputs might be adjusted in the short run?

A)Physical capital.
B)Number of hours worked by labor.
C)Units of energy required per unit output.
D)Units of material required per unit output.
E)None of the above.

Answer 3

Number of hours worked by labor.

Question 4

Use the following to answer questions :
Table 6-1
Suppose that production were defined by the function recorded in Table 6-1 above.For diminishing returns to continue to hold for the 7th unit of labor with land equal to 15 units, total product for the combination of (labor =7; land = 15)would have to be less than:

A)0.
B)116.67.
C)115.67.
D)114.67.
E)none of the above.

Question 5

The short run is a period of time so short that:

A)output cannot be varied.
B)at least one input is fixed.
C)all inputs are fixed.
D)all inputs are variable.
E)none of the above.

Question 6

Use the following to answer questions :
Table 6-1
Suppose that production is defined by the function recorded in the table above.The marginal product of the 4th unit of labor, given 20 units of land, is equal to:

A)15.5
B)17.5
C)19.0
D)1.5
E)none of the above

Question 7

The law of diminishing returns is expressed in terms of an eventual decline in the:

A)total product of an input.
B)average product of an input.
C)marginal product of an input.
D)returns to scale of an input.
E)broadest general productivity measures only.

Question 8

Which of the following is an example of a project that could be observed in the short run?

A)The construction of a new assembly line to match an existing one.
B)The construction of a new assembly line to take advantage of a new technology.
C)The moving of an established assembly line to bring it geographically closer to a market.
D)The sale of an existing assembly line on the scrap market to finance part of a new facility.
E)None of the above.

Question 9

If you hire an additional worker for your farm and you don't buy more land or tools, which of the following would explain why this worker's marginal product is less:

A)law of farming.
B)law of production function.
C)law of diminishing returns.
D)law of economics.
E)none of the above.

Question 10

A "production function" is the name for:

A)a working part.
B)a relationship between inputs and output.
C)technological change.
D)all of the above.
E)none of the above.

Question 11

If you owned a wheat farm and employed 10 workers then decided to hire another worker, the additional worker's output is considered:

A)total output.
B)marginal product.
C)average product.
D)production function.
E)none of the above.

Question 12

Use the following to answer questions :
Table 6-1
Suppose that production were represented by the production function displayed in Table 6-1 above.You would conclude that:

A)land displayed diminishing returns.
B)labor displayed diminishing returns.
C)production displayed constant returns to scale.
D)all of the above were true.
E)none of the above were true.

Question 13

Use the following to answer questions :
Table 6-1
Suppose that production is defined by the function recorded in the table above.Given 6 units of labor, the marginal product of increasing land from 10 units to 15 units is equal to:

A)15.
B)12.
C)3.
D)2.4.
E)none of the above.

Question 14

The computer has helped workers become more productive, this is an example of which of the following:

A)technological change.
B)labor change.
C)smarter labor.
D)production function.

Question 15

If we increase all of our inputs on the farm and we get a more-than- proportional increase in output, this is an example of which of the following:

A)Increasing returns to scale.
B)Constant returns to scale.
C)Decreasing returns to scale.
D)Normal returns to scale.
E)none of the above.

Question 16

Average product of labor measures:

A)the addition to total output when an additional worker is hired.
B)total product divided by total cost.
C)the marginal product of the last worker multiplied by the wage rate.
D)total product divided by the wage rate.
E)total product divided by the quantity of labor.

Question 17

If we increase all of our inputs on the farm and we get a decrease in output, this is an example of which of the following:

A)Increasing returns to scale.
B)Constant returns to scale.
C)Decreasing returns to scale.
D)Normal returns to scale.
E)none of the above.

Question 18

Use the following to answer questions :
Table 6-1
Suppose that production were given by the function recorded in Table 6-1 above.For that schedule to display decreasing returns to scale, the total product associated with 6 units of labor and 40 units of land would have to be:

A)115.
B)117.
C)119.
D)121.
E)125.

Question 19

If we increase all of our inputs on the farm and we get a proportional increase in output, this is an example of which of the following:

A)Increasing returns to scale.
B)Constant returns to scale.
C)Decreasing returns to scale.
D)Normal returns to scale.
E)none of the above.

Question 20

The law of diminishing marginal returns shows us which of the following:

A)the marginal product of each unit of input will decline as that input increases and other inputs remain constant.
B)the marginal product of labor just equals the marginal utility of leisure.
C)more workers employed in a plant will talk more and produce less.
D)total product must eventually fall.
E)returns to scale are diminishing.

Question 21

If new or improved products are introduced to the marketplace:

A)Process innovation.
B)Product innovation.
C)Production improvement
D)Labor innovations.
E)none of the above.

Question 22

Suppose that you have drawn a total product curve for labor given a specific technology.Now let some sort of technological change increase the productivity of labor.A new total product curve would have to be drawn:

A)above the old with a steeper slope for any level of employment greater than zero.
B)above the old with a flatter slope for any level of employment greater than zero.
C)below the old with a steeper slope for any level of employment greater than zero.
D)below the old with a flatter slope for any level of employment greater than zero.
E)directly over the old curve signifying no change in the total product graph; only the marginal product graph would change.

Question 23

Which of the following best describes a "production function?"

A)It indicates the best output to produce.
B)It relates dollar inputs to dollar outputs.
C)It relates physical outputs to physical inputs.
D)It indicates the best way to combine factors to produce any given output.
E)It shows the producer which laborer is most efficient.

Question 24

Important features of network markets include:

A)history matters in product design.
B)they are "tippy."
C)they lead to a fascinating array of business strategies.
D)All of the above.

Question 25

All the following indicate possible advantages to the owners of sole proprietorships, except:

A)independence in decisions.
B)potential tax savings..
C)limited liability.
D)lack of red tape.
E)none of the above; all are advantages

Question 26

As businesses grow, their need for capital typically tends to:

A)increase.
B)decrease.
C)grow at the same rate as the business.
D)remain unchanged.
E)be accommodated automatically by the marketplace.

Question 27

When new engineering knowledge improves production techniques for existing products:

A)Process innovation.
B)Product innovation.
C)Production improvement
D)Labor innovations.
E)none of the above.

Question 28

In a normal corporate structure, managers:

A)assume the liabilities of the corporation.
B)legally have the final say in major business decisions.
C)confer daily with stockholders.
D)assume responsibility for the day-to-day decisions made at the firm.
E)all of the above.

Question 29

The "double taxation" disadvantage of incorporation refers to the:

A)fact that a small proprietor who incorporated would, given the present tax schedules, typically find that he pays about double the tax he was paying before incorporation.
B)application of an excess-profits tax on corporate income, over and above the regular corporation income tax.
C)taxation of all corporate profits, paid first by the corporation and then by the shareholder, regardless of the amount distributed as dividends.
D)taxation of corporate profits, paid by the corporation, and taxation of dividends received, paid by the shareholder.
E)none of these.

Question 30

Which one of the following is not an advantage which a large corporation has relative to a small partnership?

A)Greater economies of scale.
B)Less complicated tax treatment.
C)Risk pooling.
D)Greater access to capital.
E)Limited liability.

Question 31

Consider an accounting firm which hires workers to enter data into a computer program.Which of the following would be considered a short run decision?

A)The firm would like to hire ten more workers for a weekend shift.
B)The firm is considering an investment in additional computers.
C)The firm would like to build its own facility.
D)The firm might purchase new computer software that would require some new computer hardware as well as extensive training for workers.
E)All of the above decisions could be made in the short run.

Question 32

If technological change causes a shift in the production function, it will cause:

A)changes in the maximum output produced at all different combinations of inputs.
B)a shift in factor prices.
C)a shift in producer's rent.
D)a shift in capacity utilization.
E)all of the above.

Question 33

A different kind of efficiency that arises when a number of different products that can be produced more efficiency together than apart:

A)economies of scope.
B)economies of scale.
C)economies of growth.
D)none of the above.

Question 34

If network markets are "tippy," that means:

A)equilibrium tips toward one or only a few products.
B)the market will tend to be characterized by many sellers.
C)the number of buyers will be limited by the uniqueness of the product.
D)marketing efforts will be targeted towards particular types of buyers.
E)all of the above.

Question 35

If production displays diminishing returns for all inputs, then:

A)it must also display constant returns to scale.
B)it must also display increasing returns to scale.
C)it must also display decreasing returns to scale.
D)total product need never decline.
E)any of the above might apply.

Question 36

For the law of diminishing returns to hold, the missing blank in this table must be:

A)4.
B)2.
C)more than 4.
D)less than 4.
E)0.

Question 37

Use the following to answer questions :
Figure 6-1
Suppose that production of a particular good requires two inputs, labor (L)and capital (K).If K is fixed, which of the panels in Figure 6-1 possibly represent(s)decreasing marginal productivity of labor?

A)Panel a.
B)Panel b.
C)Panel c.
D)All of the above.
E)None of the above.

Question 38

Numerically, the bulk of businesses in the U.S.are:

A)corporations.
B)partnerships.
C)sole proprietorships.
D)farms.
E)mom-and-pop retail shops.

Question 39

A network occurs when:

A)diminishing returns sets in during a production process.
B)different people are linked together through a particular medium.
C)firms work together to monopolize a market.
D)production technology lowers the total cost of production.
E)none of the above.

Question 40

The network feature that explains why we still use the QWERTY keyboard:

A)history matters in product design.
B)"tippy."
C)fascinating array of business strategies.
D)All of the above.

Question 41

If production displays increasing returns to scale, then it cannot display diminishing returns for all of its inputs.

Question 42

If an input's marginal product increases for a particular firm while its price is fixed by market forces, then the employment of that factor should increase.

Question 43

Use the following to answer questions :
Table 6-2

The total product for your farm is the sum of the output for each worker.

Question 44

Use the following to answer questions :
Table 6-2
The production process defined by the function recorded in Table 6-2 displays decreasing returns to scale for labor but not for land.

Question 45

Use the following to answer questions :
Figure 6-1
Suppose that two inputs, K and L, are variable and increase at the same rate.Which panel(s)in Figure 6-1 represent(s)Constant Returns to Scale?

A)Panel a.
B)Panel b.
C)Panel c.
D)Panel d.
E)Panels a and d.

Question 46

Use the following to answer questions :
Figure 6-1
Suppose that two inputs, K and L, are variable and increase at the same rate.Which panel(s)in Figure 6-1 represent(s)Decreasing Returns to Scale?

A)Panel a.
B)Panel b.
C)Panels b and c.
D)Panels c and d.
E)Panels b and d.

Question 47

The law of diminishing returns holds that total product eventually will begin to decline as the employment of some input increases.

Question 48

Use the following to answer questions :
Figure 6-1
Suppose that two inputs, K and L, are variable and increase at the same rate.Which one of the panels in Figure 6-1 represents Increasing Return to Scale (IRS)?

A)Panel a.
B)Panel b.
C)Panel c.
D)Panel d.
E)None of the above.

Question 49

Bell Telephone created a network externality in the early part of this century by sharing sophisticated technology with rivals.

Question 50

Which of the following most accurately describes financial liability in the event of a successfully prosecuted criminal case against a company?

A)Partners and corporate executives can go to jail, but not shareholders or bondholders.
B)Partners can go to jail, but not corporate executives, shareholders, and bondholders.
C)Active partners can go to jail, but not silent partners, shareholders, or bondholders.
D)Partners, shareholders, and corporate executives can go to jail, but not bondholders.
E)None of the above.

Question 51

If the marginal product of an input is increasing, then average product must also be increasing.

Question 52

If you double all of the inputs of a production process but one and still observe output increasing by more than 100%, then you can be sure that the process displays increasing returns to scale.

Question 53

A production function is stated only in terms of the given state of technological knowledge.

Question 54

One important disadvantage of partnerships is the

A)double taxation of their income.
B)liabilities the partners face.
C)limit to the number of possible partners.
D)vulnerability to takeovers which they face.
E)higher tax rates for higher than normal profits that are distributed as capital gains.

Question 55

Use the following to answer questions :
Table 6-2
Suppose that a production process is defined by the function recorded in Table 6-2.The marginal product of the 6th unit of labor is 14.67 with 15 units of land being employed.

Question 56

Use the following to answer questions :
Table 6-2
The production process illustrated by the function recorded in Table 6-2 displays decreasing returns to scale.

Question 57

Use the following to answer questions :
Table 6-2

The production function specifies the maximum output that can be produced with a given quantity of inputs

Question 58

Use the following to answer questions :
Table 6-2

The marginal product of an input is the extra output produced by 1 additional unit of that input while holding other inputs constant.

Question 59

Use the following to answer questions :
Table 6-2
The production process defined by the function recorded in Table 6-2 displays diminishing returns in both labor and land.

Question 60

Use the following to answer questions :
Table 6-2
Suppose that production is defined by the function recorded in Table 6-2.If that function displays constant returns to scale, then output for 20 units of land and 8 units of labor will equal 136.

Question 61

If one person owns all the shares of a company, it cannot be a corporation.

Question 62

If marginal product is smaller than average product, then average product must be falling as employment rises.

Question 63

Both in number and in dollar value of sales, the individual proprietorship is the dominant form of American enterprise.

Question 64

To draw a production function for a firm one must know both the technical relation between physical inputs and outputs and the prices of all inputs and outputs.

Question 65

Any adjustment that is possible in the short run must also be considered in the long run.

Question 66

The number of workers you can hire for your farm is usually a short run variable.

Question 67

The increase of capital per worker in the United States has shifted labor's productivity wages up faster than technological change alone would have.

Question 68

Limited liability means that a purchaser of a $10 share must contribute an additional $10 in the event of bankruptcy of the company.

Question 69

"Unlimited liability" is a disadvantage of a partnership but not of a single proprietorship.

Question 70

History matters in network markets because once consumers become accustomed to certain features, they dislike having to adjust to changes.

Question 71

Most sales revenue in the U.S.goes to corporations.

Question 72

Some economists would argue that Microsoft earned monopoly status because network markets are "tippy", that is, profits tend to accrue to firms that share technology with rivals.

Question 73

Some economists would argue that Microsoft earned monopoly status because markets are "tippy" meaning that the equilibrium tips toward one or only a few products because consumers dislike buying products that may turn out to be incompatible with dominant technologies.

Question 74

Assume a production process shows CRS.If a producer wants to increase his production by 50%, he just needs to increase all his inputs by 50%.

Question 75

It is possible that total quantity of produced goods can decrease as the result of diminishing marginal productivity of inputs, even if marginal products of all inputs are positive.

Question 76

Partners in a business face the same limited liability as shareholders of a privately held corporation.

Question 77

"Unlimited liability" in partnerships refers to the liability of each partner for her percentage share of any losses incurred, without limit, except for some legal minimum of property she is permitted to keep.

Question 78

The long run is characterized by having enough time to adjust factors such as capital, excluding all other factors.

Question 79

The production process shows CRS if and only if the production increased by 10% as the result of 10% increase in labor alone.