Question 1

Economies of scale

Accepted Answer

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 B

Question 2

Marginal costs and average variable costs are equal when

Accepted Answer

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 D

Question 3

Costs incurred only when production occurs are known as:

Accepted Answer

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

Question 4

Utility is the concept which is:

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

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

Accepted Answer

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

Question 7

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

Accepted Answer

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.

Question 8

In economic theory the costs of a firm

Accepted Answer

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 9

Which of the following is irrelevant for rational decision making?

Accepted Answer

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

Question 10

Diminishing marginal returns are most compatible with:

Accepted Answer

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

Question 11

Saturation point is the point where:

Accepted Answer

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

Question 12

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

Accepted Answer

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

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

Accepted Answer

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 14

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

Accepted Answer

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 15

If average variable costs fall as output grows:

Accepted Answer

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 16

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

Accepted Answer

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

Question 17

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

Accepted Answer

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 18

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

Accepted Answer

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

Exam 4: Production, Costs, and Demand Analysis