# 8. Average product reaches a maximum when labor equals A) 100 B) 200 C) 300 D) 400

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1 Ch The production function represents A) the quantity of inputs necessary to produce a given level of output. B) the various recipes for producing a given level of output. C) the minimum amounts of labor and capital needed to produce a given level of output. D) the set of all feasible combinations of inputs and outputs. 2. A labor requirements function represents A) the set of feasible levels of labor that will produce a given level of output. B) the various recipes for producing a given level of output. C) the minimum amount of labor necessary to produce a given level of output. D) the set of all feasible combinations of labor and outputs. 3. Factors of production are A) inputs and outputs. B) outputs only C) inputs only D) the minimum set of inputs that can produce a certain fixed quantity of output. 4. Technically inefficient points are A) points in the production set but not on the production function. B) points on the production function. C) points contained in neither the production set nor the production function. D) points that are never observed in practice. 5. Identify the truthfulness of the following statements. I. Because the production function identifies the maximum amount of output that can be produced from a given combination of inputs, only technically efficient input combinations are found on the production function. II. The production function identifies the technically feasible combinations of inputs. A) Both I and II are true. B) Both I and II are false. C) I is true; II is false. D) I is false; II is true. Page 1

2 6. The labor requirements function is derived from A) the demand curve. B) the supply curve. C) the production function. D) the capital requirement function. 7. The production set represents A) the set of all technically feasible combinations of inputs and outputs. B) the technically efficient combinations of inputs and outputs. C) the maximum output the firm can produce from a given level of inputs. D) the minimum amounts of inputs necessary to produce a given level of output. Use the following to answer questions 8-11: 8. Average product reaches a maximum when labor equals A) 100 B) 200 C) 300 D) Marginal product reaches a maximum when labor equals A) 100 B) 200 C) 300 D) 400 Page 2

3 10. When labor equals 100 A) average product is less than marginal product B) average product is greater than marginal product. C) average product is equal to marginal product. D) the relationship between average product and marginal product cannot be determined from a total product graph. 11. Diminishing marginal returns set in at labor equals A) 100 B) 200 C) 300 D) Increasing marginal returns occur when the total product function is A) decreasing. B) increasing at a decreasing rate. C) increasing at a constant rate. D) Increasing at an increasing rate. 13. Diminishing marginal returns occur when the total product function is A) decreasing. B) increasing at a decreasing rate. C) increasing at a constant rate. D) increasing at an increasing rate. Use the following to answer questions 14-17: L Q Page 3

4 14. The marginal productivity of the third worker is A) 30. B) 40. C) 50. D) The average productivity of the fifth worker is A) 20. B) 28. C) 30. D) Marginal productivity is maximized with the worker. A) second B) third C) fourth D) sixth 17. Average productivity is maximized with the worker. A) second B) third C) fourth D) sixth 18. Identify the truthfulness of the following statements. I. When the marginal product of labor is falling, the average product of labor is falling. II. When the marginal product curve lies above the average product curve, then average product is rising. A) Both I and II are true. B) Both I and II are false. C) I is true; II is false. D) I is false; II is true. 19. If marginal product is greater than average product A) total product must be increasing. B) marginal product must be decreasing. C) marginal product must be increasing. D) average product may be increasing or decreasing. Page 4

5 20. The law of diminishing marginal returns states that A) when the marginal product is above the average product, average product must be increasing. B) when the marginal product is below the average product, average product must be decreasing. C) as the use of one input increases holding the quantities of the other inputs fixed, the marginal product of the input eventually declines. D) as the use of all inputs increases, the marginal product of the inputs eventually declines. 21. Which one of these is false when compared to the relationship between marginal and average product A) When average product is increasing in labor, marginal product is greater than average product. That is, if AP L increases in L, then MP L > AP L. B) When average product is decreasing in labor, marginal product is less than average product. That is, if AP L decreases in L, then MP L < AP L. C) The relationship between MP L and AP L is not the same as the relationship between the marginal of anything and the average of anything. D) When average product neither increases nor decreases in labor because we are at a point at which AP L is at a maximum, then marginal product is equal to average product. 22. Total product hill is A) A single line graph that shows the relationship between the quantity of output and the quantity of one of two inputs employed by the firm B) A two-dimensional graph that shows the relationship between the quantity of output and the quantity of one of two inputs employed by the firm C) A three-dimensional graph that shows the relationship between the quantity of output and the quantity of the two inputs employed by the firm D) A four-dimensional graph that shows the relationship between the quantity of output and the quantity of the two inputs employed by the firm 23. Suppose every molecule of salt requires exactly one sodium atom, NA, and one chlorine atom, CL. The production function that describes this is A) Q = NA + CL B) Q = NA x CL C) Q = min(na, CL) D) Q = max(na, CL) Page 5

6 Use the following to answer questions 24-26: K=0 K=1 K=2 K=3 K=4 L= L= L= L= L= Holding capital constant at 3 units, the marginal productivity of the second laborer is A) 8. B) 12. C) 21. D) Holding labor constant at 2 units, the average productivity of three units of capital is A) 8. B) 12. C) 21. D) Holding labor constant, what do you notice about the marginal productivity of capital? A) The marginal productivity of capital is always increasing. B) The marginal productivity of capital is always constant. C) The marginal productivity of capital is always decreasing. D) The marginal productivity of capital increases, then decreases. 27. The expression given below explains: change in quantity of output Q MPL = change in quantity of labor L Q = L K is held constant A) Product hill B) Marginal product of labor C) Non-marginal product D) Total product K is held constant Page 6

7 28. An isoquant represents A) all combinations of inputs that produce a given level of output at the same cost. B) all combinations of inputs that produce a given level of output. C) all combinations of output that require the same levels of inputs. D) all combinations of inputs that cost the same amount. 32. The region of up-ward sloping backward bending isoquants is A) Economic region of production B) Uneconomic region of production C) Marginal rate of production D) Marginal rate of technical substitution 33. The marginal rate of technical substitution of labor for capital is defined as A) The rate at which the quantity of capital can be decreased for every one unit increase in the quantity of labor, holding the quantity of output constant B) The rate at which the quantity of capital must be increased for every one unit decrease in the quantity of labor, holding the cost of output constant. C) The rate at which the cost of labor and capital increases as output rises. D) The rate at which output rises as capital increases, holding labor constant. 34. The rate at which one input can be exchanged for another input without altering the level of output is called the A) marginal product curve. B) average product curve. C) marginal rate of technical substitution. D) law of diminishing marginal productivity. 35. When isoquants are convex to the origin, A) the marginal rate of technical substitution is inverted. B) the marginal rate of technical substitution is decreasing. C) the marginal rate of technical substitution is constant. D) the marginal rate of technical substitution is increasing. 36. The slope of the isoquant can be expressed as A) the ratio of the input prices. B) the ratio of the inputs. C) the ratio of the marginal productivities of the inputs. D) the sum of the marginal productivities of the inputs. Page 7

8 37. When a production function can be expressed as Q = (ak)(bl), the relationship between capital and labor in the production function is that A) capital and labor are perfect substitutes, and the isoquants are linear. B) capital and labor must be combined in fixed proportions, and the isoquants are L- shaped. C) capital and labor are substitutable, and the isoquants are convex to the origin. D) capital and labor are perfect substitutes, and the isoquants are L-shaped. 38. The MRTS L,K = A) MPK MPL B) L K C) MPL MPK D) MPK MP L Consider a production function of the form Q = K L with marginal products MP K = 2KL 2 and MP L = 2K 2 L. What is the marginal rate of technical substitution of labor for capital at the point where K = 5 and L = 5? A) 5 B) 25 C) 50 D) A measure of how quickly the marginal rate of technical substitution of labor for capital changes as we move along an isoquant is the A) capital-labor ratio B) elasticity of substitution C) input substitution possibility frontier D) rate of technological progress 41. If capital cannot easily be substituted for labor, then the elasticity of substitution is A) negative. B) close to zero. C) close to one. D) approaching infinity. Page 8

9 42. For the production function Q = al + bk, where a and b are constants, the MRTS L,K A) declines as the firm substitutes labor for capital. B) remains constant as the firm substitutes labor for capital. C) implies upward-sloping, straight-line isoquants. D) is undefined. 43. When a production function can be expressed as Q = min{ ak, BL}, the relationship between capital and labor in the production function is that A) capital and labor are perfect substitutes, and the isoquants are linear. B) capital and labor must be combined in fixed proportions, and the isoquants are L- shaped. C) capital and labor are easily substituted, and the isoquants are convex to the origin. D) capital and labor are perfect substitutes, and the isoquants are L-shaped. 44. A fixed proportions production function A) is not observed in practice. B) has straight line isoquants. C) has L-shaped isoquants. D) has a constant marginal rate of technical substitution as the firm substitutes labor for capital. 45. A production function of the form Q = AL α K β is a(n) A) isoquant function B) Cobb Douglas production function C) fixed-proportions function D) perfect compliments function 46. Consider the production function Q = 5K + 10L. The MRTS L,K is A) 2.00 B) 1.50 C) 1.00 D) 0.50 Page 9

10 49. Returns to scale refers to A) the increase in output that accompanies an increase in one input, all other inputs held constant. B) a change in a production process that enables a firm to achieve more output from a given combination of inputs. C) the number of units of increase in output that can be obtained from an increase in one unit of input. D) the percentage by which output will increase when all inputs are increased by a given percentage. 50. The production function Q = KL exhibits A) increasing returns to scale. B) constant returns to scale. C) decreasing returns to scale. D) undefined returns to scale. 51. The production function of Q = 2K + 3L exhibits A) increasing returns to scale. B) constant returns to scale. C) decreasing returns to scale. D) undefined returns to scale. 55. A production manager notices that when she triples all of her inputs simultaneously, her output doubles. The production manager determines that for this range of output, the production function exhibits A) increasing returns to scale. B) constant returns to scale. C) decreasing returns to scale. D) undefined returns to scale. 56. Identify the true statement. A) Decreasing returns to scale and diminishing marginal returns are just two different ways of saying the same thing. B) Returns to scale pertains to the impact on output of increasing all inputs simultaneously; diminishing marginal returns pertains to the impact of changing a single input while holding all other inputs constant. C) Returns to scale pertains to the impact on output of changing a single input while holding all other inputs constant; diminishing marginal returns pertains to the impact on output of increasing all inputs simultaneously. D) Returns to scale can be identified by calculating the slope of an isoquant. Page 10

11 Answer Key 1. B 2. C 3. C 4. A 5. C 6. C 7. A 8. C 9. B 10. A 11. B 12. D 13. B 14. B 15. B 16. B 17. C 18. D 19. A 20. C 21. C 22. C 23. C 24. C 25. A 26. B 27. B 28. B 32. B 33. A 34. C 35. B 36. C 37. C 38. C 39. D 40. B 41. B 42. B 43. B 44. C 45. B 46. A Page 11

12 49. D 50. A 51. B 55. C 56. B Page 12

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