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B220 Microeconomics
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PRACTICE QUESTIONS

Title: P&C (I) Module: B220

Microeconomics

Question 1

The table below shows the information for the production of Gadgets.

Production of Gadgets

Labour used Total gadgets Marginal Average

produced Product Product

0 0 - -
1 50 50 50
2 102 A (52) C(51)
3 157 55 52.33
4 B(207) 50 51.75
5 222 15 44.4

a. Calculate the values for A, B and C in the table.

A = 52 (102-50 = 52. 2-1 = 1. 52/1 = 52)
B = 207 ( 51.75x4=207)
C = 51 (102/2 = 51)

b. Based on the data in the table, your boss strongly argues that all 5 workers
contribute equally to the production.

By examining the values of marginal product in the table, explain whether you agree
or disagree with your boss.

Answer: Disagree with the boss, this is because according to the law of diminishing
marginal returns. This is due to the average product and marginal product increasing until
after the 3rd labour used that the marginal product and the average product decreases.

Based on the data in the table, I disagree with the assertion that all 5 workers contribute
equally to production. The data indicates that, given the constraints of the factory,
diminishing returns and overcrowding start to set in when the 4th worker is added. This
suggests that each additional worker does not contribute equally to the overall production
output.

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B220 Microeconomics
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Question 2

The diagram below shows the total and marginal product of iPhones built per day.

Output (I-phones per day)

TP

L1 L2 L3
Labour (workers per day)

Marginal Product
(I-phones per additional worker)

L1 L2 L3 MP
Labour (workers per day)

Based on the graphs above, answer the following questions:

a. Describe the change in total product given that marginal product is increasing from 0
to L2 worker.
Answer: The total product increases in an increasing rate from 0 to L2 worker.

b. Describe the change in marginal product given that total product is increasing at a
decreasing rate from L2 to L3 workers.
Answer: The Law of diminishing marginal sets in and the marginal product starts to fall
as the total decreasing but it’s still positive value from L2 to L3 workers.

c. Describe the related marginal product when total product at its maximum.
Answer: The marginal product is at zero when the total product is at its maximum

d. What happens to total product when marginal product becomes negative?

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B220 Microeconomics
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Answer: The total product starts to decreases when marginal product becomes
negative.

Question 3

The following table shows a long-run production change from initial scenario to each of
Scenarios A, B and C for Pizza Hut.

Scenario Labour used Pizza Oven Total Number

of Pizza

Initial 4 2 10

A 6 3 12

B 8 4 40

C 12 6 30

a. With appropriate calculations, identify and explain which type of returns of scale is
applicable when going from initial scenario to Scenario A. Your calculations should
be expressed in term of percentages.

Answer: increasing returns to scale.

A=2, B=5, C=2.5
50% increase in labour and facilities. 6-4/4 x 100 = 50% 3-2/2 x 100 = 50%
20% increase in product(output)
Decreasing return to scale
12-10/10 x 100= 20%(output)

b. With appropriate calculations, identify and explain which type of returns of scale is
applicable when going from initial scenario to Scenario B. Your calculations should
be expressed in term of percentages.
Answer: increasing returns to scale

B=5

100% increase in INPUT (100/4)x6

300% increase in OUTPUT ((100/10)x40)-100%

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B220 Microeconomics
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c. With appropriate calculations, identify and explain which type of returns of scale is
applicable when going from initial scenario to Scenario C. Your calculations should
be expressed in term of percentages.
Answer:

200% increase in lNPUT (100/4)x12

200% increase in OUTPUT ((100/10)x30 )-100%

CONSTANT RETURN TO SCALE

----- End of Practice Questions -----

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