Which of

the
following
statements
is true
about the
division of
labour?
It causes the marginal product of labour to increase, but it has no effect on the
A) average product of labour.

It was first thought of by David Ricardo in his example of a hat factory.

B)

It is an idea that has little application in the real world.

C)
Its application results in both the marginal and average products of labour
D) increasing.
Feedback: Learning Objective: 2

2
CORRECT What is significant about the level of output at which marginal product begins to
decline?

It is the point of maximum average product.

A)

It is the point of minimum average cost.

B)

It is the point at which the division of labour begins.

C)

It is the point at which diminishing returns begins.

D)
Feedback: Learning Objective: 2

3
CORRECT What will happen to total product after the point of diminishing returns has been
reached?

It will continue to rise until marginal product becomes zero.

A)

It will continue to rise until marginal product begins to decline.

B)

It will begin to fall.

C)

It will start to rise for the first time.

D)
Feedback: Learning Objective: 2

4
CORRECT What do economists mean by the term “the most productive output”?

The output where total product is at a maximum

A)
The output where average product is at a maximum
 B)

The output where marginal product is at a maximum

C)

The output where marginal cost is at a minimum

D)

The output where average total cost is at a minimum

E)
Feedback: Learning Objective: 4

5
CORRECT Which of the following statements regarding total fixed costs is correct?
When total fixed costs are graphed, the curve will rise from the origin at a
A) constant rate.

When total fixed costs are graphed, the curve will be horizontal.
B)

Total fixed costs equal total variable costs less total average costs.
C)

Total fixed costs rise slowly at first but then more quickly as output increases.
D)

Total fixed costs equal total marginal costs plus total variable costs.
E)
Feedback: Learning Objective: 4

6
CORRECT If we assume that the level of output remains unchanged, which of the following
could cause a decrease in average total, average variable, and marginal costs?

A decrease in the price of resources

A)

An increase in the price of resources

B)

An increase in the firm’s capacity output

C)

A decrease in the firm’s capacity output

D)

A decrease in the firm’s fixed cost

E)
Feedback: Learning Objective: 4

What is the
significance
of the
maximum
point on the
total
product
curve?
It is the point where the increase in output begins to slow
A) down.
It is the point where diminishing returns sets in.
 B)

It is the point of maximum marginal product.

C)

It is the point where marginal product becomes zero.

D)
Feedback: Learning Objective: 2

2
CORRECT If marginal product is declining, which of the following statements
is correct?

Average product must be falling.

A)

Average product could be rising or falling.

B)

Marginal cost must be falling.

C)

Average variable cost must be rising.

D)

Average variable cost must be falling.

E)
Feedback: Learning Objective: 2

3
CORRECT All of the following statements, except one, are correct. Which is
the exception?
If the marginal cost curve shifts down, then the average total
A) cost curve will also shift down.
If the marginal cost curve shifts down, then the average
B) variable cost curve will also shift down.
The average fixed cost curve will be unaffected by a shift in
C) the marginal cost curve.
If the marginal product curve shifts up, then the marginal cost
D) curve will shift up.
If the marginal product curve shifts up, then the average
E) product curve will shift up.
Feedback: Learning Objectives: 2,4,5

4
CORRECT Which of the following statements would be true about a firm that
is operating under conditions of excess capacity?

The firm's average total cost would be at a minimum.

A)

The firm's average total cost would not be at a minimum.

B)
The firm's average total cost may or may not be at a
C) minimum, but the firm would not be at capacity output.
The firm would not be at capacity output, but its average total
D) cost would be at a minimum.
 The firm would need to reduce output to achieve minimum
E) average total cost.

Which of
the
following
statements
is correct if
a firm’s
capacity
output
increases
from 400 to
800 and its
total costs
rise from
$60 000 to
$110 000?

The firm is experiencing constant returns to scale.

A)

The firm is experiencing diseconomies of scale.

B)

The firm is experiencing economies of scale.

C)
The firm’s long-run average cost must have decreased, but its short-run
D) average cost could have either decreased or increased.
Feedback: Learning Objective: 4

2
CORRECT If a firm builds a larger plant and constant returns to scale apply, which of the
following statements is correct?

The capacity output of the larger plant has a lower average cost.
A)

The capacity output of the larger plant has the same average cost.
B)

Economies of scale are present.

C)

LRAC will decrease as output increases.

D)
Feedback: Learning Objective: 2

3
CORRECT Which of the following statements is correct if the appropriately sized firm is one
with a large output?

Constant returns to scale must begin at low levels of output.

A)

Economies of scale must prevail until high levels of output are reached.
B)

Diseconomies of scale must begin at low levels of output.

C)
 Constant returns to scale must be absent.
D)
Feedback: Learning Objective: 6

4
CORRECT Graphically, what is the effect of technological change?
The long-run average cost curve will shift down, but the short-run curves will
A) not change.

Both the long-run and short-run average cost curves will shift down.
B)
The long-run average cost curve will shift up, but the short-run curves will not
C) change.

Both the long-run and short-run average cost curves will shift up.
D)

It will reduce the size of the average firm.

E)
Feedback: Learning Objective: 5

Wha
t
does
MES
refer
to?

The marginal efficient size of a firm

A)

The biggest-sized plant that is capable of achieving economies of scale

B)

The biggest-sized plant that is capable of achieving diseconomies of scale

C)

The smallest-sized plant that is capable of achieving diseconomies of scale

D)
The smallest-sized plant capable of achieving the lowest long-run average cost of
E) production

Adam Smith
observed
that the
division of
labour is
limited by
the size of
the market.
Which one
of the
following
statements
is not
consistent
with this
observation
?

A limited-sized market can prevent firms from achieving economic capacity.

A)
A limited-sized market can prevent firms from achieving their minimum
B) efficient scale.
A limited-sized market can prevent firms from achieving minimum short-run
C) average cost.
A limited-sized market can prevent firms from achieving minimum long-run
D) average cost.

A limited-sized market can prevent firms from achieving excess capacity.

E)
Feedback: Learning Objective: 7

2
CORRECT All of the following, except one, are possible explanations for why large-scale
operations may not be as important for firms in many industries in the future.
Economies of scale are becoming less important in some industries because of
A) new technology.

Financial capital is now more readily available to small firms than it used to be.
B)

Consumer demand is shifting toward more customized products.

C)

Very large, established firms are often less flexible.

D)
Small firms can advertise their products on TV for a per-unit cost that is just
E) as inexpensive as large firms.