MCQ (Chapter# 5 and 6)

1) A production function tells the firm

A) the maximum it can expect to produce with a given mix of inputs.
B) the minimum it can expect to produce with a given mix of inputs.
C) the average it can expect to produce with a given mix of inputs.
D) the average level of production for other firms in the industry.

2) Which of the following is NOT a factor of production?

A) capital
B) materials
C) money
D) labor

3) Which of the following statements is TRUE in the short run?

A) Raw materials are generally considered to be fixed inputs.
B) Whether or not an input is considered fixed is dependent on the price paid for the input.
C) Generally, labor is a variable input.
D) Generally, capital is a variable input.

4) The Marginal Product of Labor is

A) the ratio of output to the number of workers used to produce that output.
B) the change in total product resulting from an extra unit of labor, holding other factors constant.
C) equal to the marginal product of labor when the average product is increasing.
D) the amount of output that can be produced by a given amount of labor.

5) Given the production function q = 4L + K, what is formula for the marginal product of labor?
A) 4 + K
B) 4
C) 4K
D) Cannot be determined with the information given.

6) The above figure depicts a short-run production function for Albert's Pretzels. The marginal product of
labor
A) rises then falls as the amount of capital increases.
B) falls then rises as the amount of labor increases.
C) is less than or equal to the average product of labor for all amounts of labor.
D) is greater than or equal to the average product of labor for all amounts of labor.

7) The slope of an isoquant tells us

A) the decrease in capital necessary to keep output constant when labor increases by one unit.
B) the increase in

when capital increases.

C) the decrease in capital necessary to keep

constant when labor increases by one unit.
D) how much output increases when both inputs are increased.

8) L-shaped isoquants imply that production requires that the inputs

A) cannot be used together.
B) must be used together in a certain proportion.
C) are imperfect substitutes.
D) are perfect substitutes.

9) Returns to scale is a concept that operates

A) only in the long run.
B) only in the short run.
C) in both the long run and the short run.
D) in either the long run or the short run but never both.

10) If a firm triples inputs and produces twice the output, then there are
A) increasing returns to scale. B) constant returns to scale.
C) decreasing returns to scale. D) diminishing marginal product.

11) Economic costs of an input include

A) only explicit costs.
B) both implicit and explicit costs.
C) only implicit costs.
D) whatever management wishes to report to the shareholders.
12) Sue is taking an accounting job she was offered that pays $67,000 per year. She also had two other
offers, a sales job paying $71,000 per year and a marketing job paying $65,000 per year. What is Sue's
opportunity cost of taking the accounting job?
A) $65,000

B) $67,000

C) $136,000

D) $71,000

13) A sunk cost is

A) a past cost that cannot be recovered.
B) an opportunity cost.
C) the cost for drilling certain types of wells, such as a well for water.
D) a cost that is highly relevant for decision-making.
14) Which of the following statements is NOT true?
A) AC = AFC + AVC B) AFC = AC - AVC
C) AVC = wage/MPL D) C = F + VC
15) Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The average cost of
the 5th T-shirt is
A) 2.

B) 60.

C) 52.

D) 12.

16) Suppose the short-run production function is q = 10 L. If the wage rate is $10 per unit of labor, then
AFC equals
A) 1.
B) 10/q.
C) 0.
D) It cannot be determined from the information provided.
17) Isoquant lines represent ________ whereas isocost lines represent ________.
A) economic efficiency; marginal costs B) economic efficiency; technical efficiency
C) input tradeoffs; economic tradeoffs D) technical efficiency; economic efficiency
18) Isocost lines
A) are the inverse of the isoquant lines.
B) represent the combinations of inputs that have the same total cost.
C) represent the combinations of inputs that have the same marginal cost.
D) represent supply and demand for inputs at a given cost.

19) The slope of the isoquant tells the firm how much
A) capital must decrease to keep output constant when labor increases by one unit.
B) output increases when capital and labor are doubled.
C) a unit of capital costs relative to the cost of labor.
D) output increases when labor increases by one unit.
20) A cost function has economies of scale if
A) the average total cost falls as production increases.
B) total costs fall as production increases.
C) average fixed costs fall as production increases.
D) it is less expensive to produce goods jointly rather than separately.