Chapter 6/Firms and Production
Chapter 6 Firms and Production
MULTIPLE CHOICE
Choose the one alternative that best completes the statement or answers the question.
1) Economists typically assume that the owners of firms wish to
A) produce efficiently.
B) maximize sales revenues.
C) maximize profits.
D) All of the above.
Answer: C
Diff: 0
Topic: The Ownership and Management of Firms
2) Which of the following statements best describes a production function?
A) the maximum profit generated from given levels of inputs
B) the maximum level of output generated from given levels of inputs
C) all levels of output that can be generated from given levels of inputs
D) all levels of inputs that could produce a given level of output
Answer: B
Diff: 0
Topic: Production
3) With respect to production, the short run is best defined as a time period
A) lasting about six months.
B) lasting about two years.
C) in which all inputs are fixed.
D) in which at least one input is fixed.
Answer: D
Diff: 0
Topic: Production
4) Joey cuts grass during the summer. He owns one lawn mower. For him, the short run is equal to
A) the amount of time it takes to acquire more customers.
B) the amount of time it takes to hire an additional employee.
C) the amount of time it takes to hire an additional employee and buy another lawn mower.
D) the amount of time it takes to mow one lawn.
Answer: C
Diff: 1
Topic: Production
5) Joey cuts grass during the summer. He rents a lawn mower from his dad. Which of the following statements best illustrates the difference between the short run and the long run for Joey?
A) Joey's friends say they will help him, but when he calls them, they say they have other things to do.
B) When Joey acquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother.
C) Some customers pay Joey immediately; others wait till the following week.
D) Joey has had to turn away some customers because he is already too busy.
Answer: B
Diff: 2
Topic: Production
Figure 6.1
6) Figure 6.1 shows the short-run production function for Albert's Pretzels. The marginal productivity of labor
A) rises then falls as the amount of labor increases.
B) falls then rises as the amount of labor increases.
C) is greater than or equal to the average productivity of labor for all amounts of labor.
D) is less than or equal to the average productivity of labor for all amounts of labor.
Answer: D
Diff: 1
Topic: Short-Run Production
7) Figure 6.1 shows the short-run production function for Albert's Pretzels. The marginal productivity of labor for the third worker is
A) 6.
B) 8.
C) 24.
D) not known from the information provided.
Answer: A
Diff: 0
Topic: Short-Run Production
8) Figure 6.1 shows the short-run production function for Albert's Pretzels. The marginal productivity of labor equals the average productivity of labor
A) for all levels of labor.
B) at none of the levels of labor.
C) only for the first worker.
D) only for the fifth worker.
Answer: C
Diff: 1
Topic: Short-Run Production
9) Figure 6.1 shows the short-run production function for Albert's Pretzels. The law of diminishing marginal productivity
A) appears with the second worker.
B) has not yet appeared for any of the levels of labor.
C) first appears with the fifth worker.
D) is refuted by this evidence.
Answer: A
Diff: 1
Topic: Short-Run Production
10) If the average productivity of labor equals the marginal productivity of labor, then
A) the average productivity of labor is at a maximum.
B) the marginal productivity of labor is at a maximum.
C) Both A and B above.
D) Neither A nor B above.
Answer: A
Diff: 1
Topic: Short-Run Production
11) Average productivity will fall as long as
A) marginal productivity is falling.
B) it exceeds marginal productivity.
C) it is less than marginal productivity.
D) the number of workers is increasing.
Answer: B
Diff: 1
Topic: Short-Run Production
12) If the marginal productivity of labor is constant for all levels of output, then the average productivity of labor
A) is constant.
B) equals the marginal productivity of labor.
C) Both A and B above.
D) Either A or B above but not both.
Answer: C
Diff: 1
Topic: Short-Run Production
13) Joey cuts lawns during the summer. Let q equal the number of acres mowed per day, and let L equal the number of hours worked per day. Joey never works more than eight hours per day, and during that time his short-run production function is q = 0.2 * L. Which of the following statements is FALSE?
A) Joey's marginal productivity equals his average productivity.
B) Joey's marginal productivity diminishes by 0.2 for each additional hour worked.
C) Joey's average productivity is constant.
D) Joey's marginal productivity is constant.
Answer: B
Diff: 1
Topic: Short-Run Production
14) Which of the following statements best summarizes the law of diminishing marginal returns?
A) In the short run, as more labor is hired, output diminishes.
B) In the short run, as more labor is hired, output increases at a diminishing rate.
C) In the short run, the amount of labor a firm will hire diminishes as output increases.
D) As more labor is hired, the length of time that defines the short run diminishes.
Answer: B
Diff: 1
Topic: Short-Run Production
15) Which situation is most likely to exhibit diminishing marginal returns to labor?
A) a factory that obtains a new machine for every new worker hired
B) a factory that hires more workers and never increases the amount of machinery
C) a factory that increases the amount of machinery and holds the number of worker constant
D) None of these situations will result in diminishing marginal returns to labor.
Answer: B
Diff: 1
Topic: Short-Run Production
16) Thomas Malthus' prediction of mass starvation resulting from diminishing marginal returns has not been fulfilled because
A) the law of diminishing marginal returns did not hold in this case.
B) Malthus ignored other factors like technological change.
C) relative to Malthus' day, larger percentage of today's labor works in the agricultural sector.
D) All of the above.
Answer: B
Diff: 1
Topic: Short-Run Production
Figure 6.2
17) At Joey's Lawncutting Service, a lawn mower cannot cut grass without a laborer. A laborer cannot cut grass without a lawn mower. Which graph in Figure 6.2 best represents the isoquants for Joey's Lawncutting Service when capital per day is on the vertical axis and labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Answer: A
Diff: 1
Topic: Long-Run Production
18) Lectures in microeconomics can be delivered either by an instructor (labor) or a movie (capital) or any combination of both. Each minute of the instructor's time delivers the same amount of information as a minute of the movie. Which graph in Figure 6.2 best represents the isoquants for lectures in microeconomics when capital per day is on the vertical axis and labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Answer: C
Diff: 1
Topic: Long-Run Production
19) Which graph in Figure 6.2 represents the isoquants where, as the amount of labor
used increases and the amount of capital used decreases, the marginal product of labor rises when capital per day is on the vertical axis and labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Answer: D
Diff: 1
Topic: Long-Run Production
20) To say that isoquants are convex is to say that
A) the marginal rate of technical substitution falls as labor increases.
B) capital and labor are perfect substitutes.
C) labor, but not capital, is subject to the law of diminishing marginal returns.
D) there are constant returns to scale.
Answer: A
Diff: 1
Topic: Long-Run Production
21) One way to explain the convexity of isoquants is to say that
A) as labor increases and capital decreases, MPL rises while MPK falls.
B) as labor increases and capital decreases, MPL falls while MPK rises.
C) as labor increases and capital decreases, MPL and MPK both fall.
D) as labor increases and capital decreases, MPL and MPK both rise.
Answer: B
Diff: 2
Topic: Long-Run Production
22) An isoquant represents levels of capital and labor that
A) have constant marginal productivity.
B) yield the same level of output.
C) incur the same total cost.
D) All of the above.
Answer: B
Diff: 0
Topic: Long-Run Production
23) Suppose the production of paved roadways can be represented as q = L0.5+ K0.5. Which of the following statements is (are) TRUE?
A) Labor is subject to diminishing marginal productivity in the short run.
B) Labor and capital are imperfect substitutes.
C) The isoquants for paved roadways are convex.
D) All of the above.
Answer: D
Diff: 2
Topic: Long-Run Production
24) L-shaped isoquants imply that production requires that the inputs
A) are perfect substitutes.
B) are imperfect substitutes.
C) cannot be used together.
D) must be used together in a certain proportion.
Answer: D
Diff: 1
Topic: Long-Run Production
25) Isoquants that are downward-sloping straight lines imply that the inputs
A) are perfect substitutes.
B) are imperfect substitutes.
C) cannot be used together.
D) must be used together in a certain proportion.
Answer: A
Diff: 1
Topic: Long-Run Production
26) Isoquants that are downward-sloping straight lines exhibit
A) an increasing marginal rate of technical substitution.
B) a decreasing marginal rate of technical substitution.
C) a constant marginal rate of technical substitution.
D) a marginal rate of technical substitution that cannot be determined.
Answer: C
Diff: 1
Topic: Long-Run Production
27) The slope of an isoquant tells us
A) how much output increases when both inputs are increased.
B) the increase in MPL when capital increases.
C) the decrease in capital necessary to keep output constant when labor increases by one unit.
D) the decrease in capital necessary to keep MPL constant when labor increases by one unit.
Answer: C
Diff: 1
Topic: Long-Run Production
28) The steeper an isoquant is
A) the greater is the marginal productivity of labor relative to that of capital.
B) the greater is the substitutability between capital and labor.
C) the greater is the need to keep capital and labor in fixed proportions.
D) the greater is the level of output.
Answer: A
Diff: 2
Topic: Long-Run Production
29) With capital on the vertical axis and labor on the horizontal axis, vertical isoquants imply that
A) capital and labor are perfect substitutes.
B) capital and labor must be used together in a certain proportion.
C) capital is not productive.
D) labor is not productive.
Answer: C
Diff: 1
Topic: Long-Run Production
30) Returns to scale refers to the change in output when
A) all inputs increase proportionately.
B) labor increases holding all other inputs fixed.
C) capital equipment is doubled.
D) specialization improves.
Answer: A
Diff: 0
Topic: Returns to Scale
Figure 6.3
31) The table in Figure 6.3 shows the levels of output resulting from different levels of inputs. Which of the following conclusions can be drawn from this information?
A) Increasing returns to scale exist when 100 units of output are produced.
B) Constant returns to scale exist throughout all levels of production.
C) Labor is subject to diminishing marginal productivity in the short run.
D) No firm conclusions can be drawn.
Answer: A
Diff: 1
Topic: Returns to Scale
32) The table in Figure 6.3 shows the levels of output resulting from different levels of inputs. Returns to scale are greatest at which level of output?
A) 100 - 200 units
B) 200 - 400 units
C) 400 - 600 units
D) There is insufficient information to answer the question.
Answer: A
Diff: 1
Topic: Returns to Scale
33) The table in Figure 6.3 shows the levels of output resulting from different levels of inputs. At which level of input are there constant returns to scale?
A) 400 - 600 units
B) Constant returns to scale exist throughout all levels of production.
C) Constant returns to scale do not exist at any level of production.
D) No firm conclusions can be drawn.
Answer: A
Diff: 1
Topic: Returns to Scale
34) Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. Which of the following statements is (are) TRUE?
A) The production function has decreasing returns to scale.
B) The marginal productivity of labor falls as labor increases in the short run.
C) Capital and labor can be substituted for one another.
D) All of the above.
Answer: D
Diff: 2
Topic: Returns to Scale
35) Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. Which of the following statements is TRUE?
A) The production function has decreasing returns to scale.
B) The production function has increasing returns to scale.
C) The production function has constant returns to scale.
D) Returns to scale vary with the level of output.
Answer: A
Diff: 2
Topic: Returns to Scale
36) Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. The firm currently produces q1 units. If all inputs doubled, the new level of output will equal
A) 20.4 q1.
B) 20.8 q1.
C) 0.8 q1.
D) 1.6 q1.
Answer: B
Diff: 2
Topic: Returns to Scale
37) Returns to scale is a concept that operates
A) only in the short run.
B) only in the long run.
C) in both the long run and the short run.
D) in either the long run or the short run but never both.
Answer: B
Diff: 1
Topic: Returns to Scale
Figure 6.4
38) Figure 6.4 shows the isoquants for producing steel. Increasing returns to scale are
A) present when producing less than 10,000 tons.
B) present when producing less than 20,000 tons.
C) present when producing less than 30,000 tons.
D) never present.
Answer: A
Diff: 1
Topic: Returns to Scale
39) Figure 6.4 shows the isoquants for producing steel. Decreasing returns to scale are
A) present when producing more than 10,000 tons.
B) present when producing more than 20,000 tons.
C) present when producing more than 30,000 tons.
D) never present.
Answer: B
Diff: 1