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Question 1

Refer to the above short-run production and cost data. The curves of Figures A and B suggest that:
a) marginal product and marginal cost reach their maximum points at the same output.
b) marginal cost reaches a minimum where marginal product is at its maximum.
c) marginal cost and marginal product reach their minimum points at the same output.
d) AVC cuts MC at the latter's minimum point.

Question 2
Marginal resource cost is:
a) the increase in total resource cost associated with the production of one more unit of
output.
b) the increase in total resource cost associated with the hire of one more unit of the
resource.
c) total resource cost divided by the number of inputs employed.
d) the change in total revenue associated with the employment of one more unit of the
resource.

Question 3


Refer to the above short-run production and cost data. In Figure B curve (3) is:
a) AVC and curve (4) is MC.
b) MC and curve (4) is AVC.
c) MC and curve (4) is AFC.
d) AFC and curve (4) is MC.

Question 4
The MRP curve for labor:
a) is downsloping and shows the relationship between wage rates and the quantity of
labor demanded.
b) is perfectly elastic if the firm is selling its output competitively.
c) is upsloping and lies above the labor supply curve.
d) will shift location when the wage rate changes.

Question 5
When economists say that the demand for labor is a derived demand, they mean that it is:
a) dependent on government expenditures for public goods and services.
b) related to the demand for the product or service labor is producing.
c) based on the desire of businesses to exploit labor by paying below equilibrium wage
rates.
d) based on the assumption that workers are trying to maximize their money incomes.

Question 6
Utility refers to the:
a) satisfaction that a consumer derives from a good or service.
b) rate of decline in a product demand curve.
c) relative scarcity of a product.
d) usefulness of a product.

Question 7
The long-run average total cost curve:
a) displays declining unit costs so long as output is increasing.
b) indicates the lowest unit costs achievable when a firm has had sufficient time to alter
plant size.
c) has a shape which is the inverse of the law of diminishing returns.
d) can be derived by summing horizontally the average total cost curves of all firms in an
industry.

Question 8
Marginal revenue product measures the:
a) amount by which the extra production of one more worker increases a firm's total
revenue.
b) decline in product price that a firm must accept to sell the extra output of one more
worker.
c) increase in total resource cost resulting from the hire of one extra unit of a resource.
d) increase in total revenue resulting from the production of one more unit of a product.

Question 9
Which of the following best expresses the law of diminishing returns?
a) Because large-scale production allows the realization of economies of scale, the real
costs of production vary directly with the level of output.
b) Population growth automatically adjusts to that level at which the average product per
worker will be at a maximum.
c) As successive amounts of one resource (labor) are added to fixed amounts of
other resources (capital), beyond some point the resulting extra output will decline.
d) Proportionate increases in the inputs of all resources will result in a less-than-
proportionate increase in total output.

Question 10
Which of the following is most likely to be an implicit cost for Company X?
a) forgone rent from the building owned and used by Company X
b) rental payments on IBM equipment
c) payments for raw materials purchased from Company Y
d) transportation costs paid to a nearby trucking firm

Question 11
Marginal utility is the:
a) sensitivity of consumer purchases of a good to changes in the price of that good.
b) change in total utility obtained by consuming one more unit of a good.
c) change in total utility obtained by consuming another unit of a good divided by the
change in the price of that good.
d) total utility associated with the consumption of a certain number of units of a good
divided by the number of units consumed.

Question 12
Marginal cost:
a) equals both average variable cost and average total cost at their respective minimums.
b) is the difference between total cost and total variable cost.
c) rises for a time, but then begins to decline when diminishing returns set in.
d) declines continuously as output increases.

Question 13
If you operated a small bakery, which of the following would be a variable cost in the short run?
a) baking ovens
b) interest on business loans
c) annual lease payment for use of the building
d) baking supplies (flour, salt, etc.)

Question 14
To economists, the main difference between the short run and the long run is that:
a) the law of diminishing returns applies in the long run, but not in the short run.
b) in the long run all resources are variable, while in the short run at least one resource is
fixed.
c) fixed costs are more important to decision making in the long run than they are in the
short run.
d) in the short run all resources are fixed, while in the long run all resources are variable.

Question 15
In the above figure, curves 1, 2, 3, and 4 represent the:

a) ATC, MC, AFC, and AVC curves respectively.
b) MC, AFC, AVC, and ATC curves respectively.
c) MC, ATC, AVC, and AFC curves respectively.
d) ATC, AVC, AFC, and MC curves respectively.

Question 16
The law of diminishing marginal utility states that:
a) total utility is maximized when consumers obtain the same amount of utility per unit of
each product consumed.
b) beyond some point additional units of a product will yield less and less extra satisfaction
to a consumer.
c) price must be lowered to induce firms to supply more of a product.
d) it will take larger and larger amounts of resources beyond some point to produce
successive units of a product.

Question 17
A firm will find it profitable to hire workers up to the point at which their:
a) marginal resource cost equals their wage rate.
b) wage rate equals product price.
c) MP is equal to their MRP.
d) marginal resource cost is equal to their MRP.

Question 18
Economies and diseconomies of scale explain:
a) the profit-maximizing level of production.
b) why the firm's long-run average total cost curve is U-shaped.
c) why the firm's short-run marginal cost curve cuts the short-run average variable cost
curve at its minimum point.
d) the distinction between fixed and variable costs.

Question 19
The elasticity of resource demand will be greater the:
a) smaller the portion of the product's total costs accounted for by the resource.
b) less the elasticity of demand for the product it is producing.
c) easier it is to substitute other resources in production.
d) less the elasticity of resource supply.

Question 20
For most producing firms:
a) marginal cost rises as output is carried to a certain level, and then begins to decline.
b) total costs rise as output is carried to a certain level, and then begin to decline.
c) average total costs decline as output is carried to a certain level, and then begin
to rise.
d) average total costs rise as output is carried to a certain level, and then begin to decline.

Question 21
The theory of consumer behavior assumes that:
a) consumers behave rationally, attempting to maximize their satisfaction.
b) consumers have unlimited money incomes.
c) consumers do not know how much marginal utility they obtain from successive units of
various products.
d) marginal utility is constant.

Question 22
Diseconomies of scale arise primarily because:
a) the short-run average total cost curve rises when marginal product is increasing.
b) of the difficulties involved in managing and coordinating a large business enterprise.
c) firms must be large both absolutely and relative to the market to employ the most
efficient productive techniques available.
d) beyond some point marginal product declines as additional units of a variable resource
(labor) are added to a fixed resource (capital).

Question 23
Which of the following will not shift the demand curve for labor?
a) the use of a larger stock of capital with the labor force
b) a change in the wage rate
c) an increase in the price of the product which labor is helping to produce
d) the adoption of a more efficient method of combining labor and capital in the
production process

Question 24
Marginal cost is the:
a) rate of change in total fixed cost that results from producing one more unit of output.
b) change in total cost that results from producing one more unit of output.
c) change in average variable cost that results from producing one more unit of output.
d) change in average total cost that results from producing one more unit of output.

Question 25
Where total utility is at a maximum, marginal utility is:
a) negative.
b) positive and increasing.
c) zero.
d) positive but decreasing.