SAMPLE MCQ

1) Suppose our firm produces chartered business flights with capital

(planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane).
If the wage rate paid to the pilots increases relative to the rental rate of
capital for the airplanes, then:

A) the optimal capital-labor ratio should increase.

B) the optimal capital-labor ratio should decrease.
C) the optimal capital-labor ratio remains the same.
D) We do not have enough information to answer this question.

2) Assume that a firmʹs production process is subject to increasing returns

to scale over a broad range of outputs. Long-run average costs over this
output will tend to

A) increase.
B) decline.
C) remain constant.
D) fall to a minimum and then rise.

3) If a full-time student chooses to spend a day at the beach, the

opportunity cost of this decision is equal to

A) the alternative use of the student's time, such as studying.

B) the food, drinks and sunscreen purchased for the day at the
beach.
 C) the wages that the student would have received had
he/she decided to work full-time instead of studying.

D) zero, since the student is not in paid employment, and is not

foregoing any wages.

4) If the quantity of resources available is fixed, as more of a good is

produced, the opportunity cost of producing it increases. The most
probable reason for this is that

A) consumers are unwilling to pay higher prices to cover

the increases in production costs.

B) resources are not equally well-suited to producing all

goods.

C) the price of the inputs used to produce the good will rise.

D) as more of a good is produced, the quality of technology

available to produce additional units declines.

5) If an economy had production problems which led to inefficiency, but

then solved these problems and increased economic efficiency, how would
this be shown on a production possibility frontier?

A) The slope of the production possibility

frontier would become more elastic.
B) The production possibility frontier would shift
outwards.

C) There would be a movement from a point inside the

frontier to a point closer to or on the frontier.

D) The slope of the production possibility frontier would become

more inelastic.