Chapter 6: output and cost curves

1) The onset of diminishing average returns occurs:

a. when marginal product is at its maximum.
b. when average product is at its minimum.
c. where the marginal product curve crosses the average product curve.
*d. when average product is at its maximum.

2) Marginal product and average product:

a. are continually increasing functions of output.
b. are continually decreasing functions of output.
c. are equal over all ranges of output.
*d. are derived from the production function.

3) If increasing quantities of a variable input are applied to a given

quantity of a fixed input:
a. the marginal product of the variable input will always increase.
*b. the marginal product and the average product of the variable input will
eventually decrease.
c. the law of diminishing returns will never hold.
d. the average product of the variable input will never decrease.

4) When average product is at its maximum:

a. total product is equal to marginal product.
b. marginal product is less than average product.
*c. marginal product is equal to average product.
d. marginal product is greater than average product.

5) After two employees left a small company, calculations showed that the
company's total product had not changed. This indicates that:
a. the marginal product of each worker increased.
*b. the two employees who left the company had marginal products of
zero.
c. all the remaining employees were equally lazy.
d. the marginal product of each worker had decreased.
6) The law of diminishing returns implies that:
a. marginal cost will eventually decrease.
b. total variable cost will eventually decrease.
*c. marginal cost and average variable cost will eventually increase.
d. marginal cost and average variable cost will eventually decrease.

7) Marginal product reaches its maximum when the quantity of the

variable input used:
a. is at its maximum.
*b. is smaller than at maximum average product.
c. is greater than at maximum average product.
d. is the same as at maximum average product.

8) The level of output produced when short-run average total cost is

minimized is referred to as:
a. disequilibrium quantity of demand.
b. supply output.
*c. capacity output.
d. demand.

9) A firm should substitute one input for another:

a. until the ratio of their marginal products is less than the ratio of their
prices.
*b. until the ratio of their marginal products equals the ratio of their
prices.
c. until their marginal products are equal.
d. until their marginal prices are equal.

10) In equilibrium, if the relative price of capital and labour is 2, then:

a. the marginal product of labour is greater than the marginal product of
capital.
b. the marginal product of labour is equal to the marginal product of
capital.
*c. the marginal product of capital is greater than the marginal product of
labour.
d. none of the above is true.
19) Costs can be reduced if:
*a. the ratio of the marginal product of capital to the price of capital is
greater than the ratio of the marginal product of labour to the price of
labour.
b. the ratio of the marginal product of labour to the price of capital is
greater than the ratio of the marginal product of capital to the price of
labour.
c. the ratio of the marginal product of capital to the price of labour is less
than the ratio of the marginal product of labour to the price of capital.
d. all of the above are true.