Question 1. A firm's production function is the relationship between:
- the inputs employed by the firm and the resulting costs of production.
- the demand for a firm's output and the quantity it is able to produce with available resources.
- the firm's production costs and the amount of revenue it receives from the sale of its output.
- the factors of production and the resulting outputs of the production process.
Question 2: Consider the production function for bottled water. All of the following would be considered variable inputs except:
- the electricity used to power the machine used to fill the bottles.
- the machine used to fill each bottle.
- the plastic bottles.
- the water the bottles are filled with.
Question 3: Which of the following is true in the short run, but not in the long run?
- The firm is free to vary all of its inputs.
- The firm's decisions are planning decisions.
- The firm makes decisions by attempting to predict future demand and technological developments.
- The firm is "stuck" with the existing amount of capital.
Question 4: Which of the following inputs is most likely to be "fixed" in the short run?
- Capital.
- Labor.
- Raw Material.
- Energy.
Question 5: Assume a factory that currently employs 25 workers is considering adding another 5 workers to its payroll. Economists would classify this as:
- a long-run decision.
- a short-run decision.
- neither a short-run nor a long-run decision.
- both a short-run and a long-run decision.
Question 6: Total product is defined as the total quantity of output a firm can produce:
- with a given quantity of fixed inputs.
- when it is operating at capacity.
- with a given quantity of fixed and variable inputs.
- with a given quantity of variable inputs.
Question 7: The amount of output produced with an additional unit of variable input is referred to as:
- marginal product.
- total product.
- average variable product.
- average fixed product.
Question 8: The amount of output produced per unit of variable input is referred to as:
- total product.
- marginal product.
- average variable product.
- average fixed product.
Question 9: When total product reaches its maximum:
- marginal product equals 0.
- average product equals zero.
- marginal product and average product are also at their maximum values.
- marginal product equals average product.
Question 10: All else constant, an increase in productivity has the effect of causing:
- both the marginal and average product of labor to increase.
- the marginal product of labor to increase and the average product of labor to decrease.
- the marginal product of labor to increase and no effect on the average product of labor.
- the average product of labor to increase and no effect on the marginal product of labor.
Question 11: Which of the following is true of the typical relationship between marginal product (MP) and average product (AP)?
- If MP is less than AP, then AP is increasing.
- The AP curve intersects the MP curve at minimum MP.
- The MP curve intersects the AP curve at maximum AP.
- If MP is greater than AP, then AP is falling.
Question 12: Diminishing returns occur when:
- the size of the plant is increased in the long run.
- the quantity of the fixed input is increased and returns to the variable input fall.
- units of a variable input are added to a fixed input and total product falls.
- units of a variable input are added to a fixed input and marginal product falls.
Question 13: Which of the following statements is correct?
- Between 1979 and 1998, Chrysler and Ford eliminated the productivity gap between all of their production facilities and their Japanese counterparts.
- The increase in productivity Japanese manufacturers experienced in the early 1980s was the result primarily of long-run changes in management focusing on inventory systems and plant layout.
- Workers employed by General Motors are approximately twice as productive as their Japanese counterparts.
- Auto workers in the United States are less productive than their Japanese counterparts primarily due to the higher wages U.S. workers receive.
Question 14: Recent data on productivity gains in the United States strongly suggest that a significant share of those gains is attributable to:
- improvements in information technology.
- improvements in education and training.
- increased demand for goods and services.
- substantial reductions in labor costs.
Question 15: Which of the following is an example of an "implicit cost"?
- The interest payment made by the firm for funds borrowed from a bank.
- The payment of rent by the firm for the building in which it is housed.
- The payment of wages by the firm.
- Interest that could have been earned on retained earnings used by the firm to finance expansion.
Question 16: Which of the following is an example of an "explicit cost"?
- The wages a proprietor could have made by working as an employee of a large firm.
- The normal profit earned by a firm.
- The payment of wages by the firm.
- The income that could have been earned in alternative uses by the resources owned by the firm.
Question 17: Which of the following statements regarding historic costs is false?
- Historic costs vary depending on the method of depreciation a firm uses.
- Historic costs represent what the firm paid for an input when it was purchased.
- Using historic costs can cause true economic profit to be under or over stated.
- Historic costs may not be a good indicator of the current opportunity cost of a piece of capital.
Question 18: Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000. If the owner could work for another company for $30,000 a year, we would conclude that:
- the total economic costs are $100,000.
- the individual is earning an economic profit of $25,000.
- implicit costs are $25,000.
- the firm is incurring an economic loss.
Question 19: In the short run, if a firm chooses to produce no output (i.e., shut down) its total costs of production will equal:
- 0.
- its marginal fixed costs
- its total variable costs
- its total fixed costs.
Question 20: The upward-sloping part of the short-run marginal cost function is due to:
- the change in total product rising as units of a variable input are added to a fixed input.
- the upward-sloping part of the production function.
- marginal product falling as units of a variable input are added to a fixed input.
- marginal product rising as units of a variable input are added to a fixed input.