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| 1 | |
Production, as economists deal with it, |
| | A) | involves the process of motivating labor inputs. |
| | B) | involves the process of getting the right mix of inputs together to generate utility for people. |
| | C) | counts intermediate goods as part of the output of any production process. |
| | D) | Distinguishes between goods and services and focuses on the former as the key to economic success. |
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| 2 | |
An intermediate good |
| | A) | is counted as part of value added at all stages of production. |
| | B) | never enters into the price of the final good. |
| | C) | would be the coffee making machine in a Starbucks enterprise. |
| | D) | exists in the production of goods but not in the production of services. |
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| 3 | |
In a typical short-run production function |
| | A) | the maximum average product occurs at lower levels of labor than does the maximum marginal product. |
| | B) | the marginal product of labor increases until total product peaks. |
| | C) | an employer is likely to increase employment until average product of labor is zero. |
| | D) | the marginal product of labor equals the average product of labor where the average product is at its peak. |
| | E) | none of the above is true. |
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| 4 | |
The shape of the typical short-run production function of a factory has first a range of employment where increasing returns exist and then a range of employment where decreasing returns exist because |
| | A) | the earlier workers hired are the best workers and later hires are of lower quality. |
| | B) | the factory is highly productive when it is new, but it becomes less productive as it ages. The diminishing returns notion picks up the aging problem of capital. |
| | C) | the factory has too few workers for its size at low output levels so as the number of workers increase the mix of capital and labor inputs is more desirable and increasing returns result. However, as labor increases the factory has too many laborers to be efficient. |
| | D) | all of the above. |
| | E) | none of the above. |
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| 5 | |
If the owner of a service station told a mechanic looking for work that he would not hire another mechanic if the mechanic offered to work for nothing, we can assume that |
| | A) | the average product of mechanics is 0. |
| | B) | the average product of mechanics is rising. |
| | C) | the average product of mechanics is negative. |
| | D) | the average product of mechanics is falling. |
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| 6 | |
Plant 1 has a total product of 100 produced by 10 workers. Plant 2 has a total product of 100 produced by 8 workers. From this information we can say that any additional production should be |
| | A) | produced by plant 1 |
| | B) | produced by plant 2 |
| | C) | divided equally between plant 1 and plant 2. |
| | D) | allocated after more information is acquired. |
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| 7 | |
Referring to question 6 above, if we know that an 11th worker in plant 1 would add 4 units of output and a 9th worker in plant 2 would add 3 units it is then clear that added output should be produced by |
| | A) | plant 1 |
| | B) | plant 2 |
| | C) | either plant since both have the same average cost. |
| | D) | neither plant until more information is given. |
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| 8 | |
Isoquants are negatively sloped because |
| | A) | of increasing returns to production. |
| | B) | labor and capital are substitutes in production. |
| | C) | the price of each input rises as more of it is employed. |
| | D) | of all of the above. |
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| 9 | |
Decreasing returns to scale |
| | A) | are the same as diminishing returns to production. |
| | B) | means that as inputs expand proportionately the average cost of production falls. |
| | C) | is present when isoquants numbered 10, 20, 30, 40, etc. get closer together as the output expands. |
| | D) | is described by none of the above. |
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| 10 | |
The marginal rate of technical substitution of labor for capital |
| | A) | falls as more labor is hired. |
| | B) | can be measured by the slope of the isoquant. |
| | C) | can be meaningfully measured only by holding the level of output constant. |
| | D) | All of the above are true. |
| | E) | None of the above are true. |
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Refer to the chart below for the following 3 questions. It is a production function showing the combinations of labor and capital that are needed to produce the output shown in the shaded area.
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| 11 | |
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In the standard conception of a production function, the output numbers in the chart above represent |
| | A) | the price the producer charges for the product being produced. |
| | B) | The value of the raw materials being used in the process. |
| | C) | The labor costs of producing minus the value added. |
| | D) | The value of the product sold minus the value of the raw materials or intermediate goods used in production. |
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| 12 | |
Which statement is true of the production function shown above? |
| | A) | There are five different short-run production functions to analyze. |
| | B) | The entire table represents the long-run production function data. |
| | C) | There is increasing and decreasing returns to labor in the production function. |
| | D) | When each input is doubled from 2 to 4 units there are constant return to scale. |
| | E) | All of the above are true. |
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| 13 | |
The law of diminishing returns sets in with worker number ___. |
| | A) | 1 |
| | B) | 2 |
| | C) | 3 |
| | D) | 4 |
| | E) | 5 |
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| 14 | |
In a typical short-run production function with labor on the horizontal axis and total output on the vertical axis, technological change can be shown by |
| | A) | a movement upward along the production curve. |
| | B) | A shift of the production function downward. |
| | C) | A shift of the production function upward. |
| | D) | None of the above because technology must be assumed constant in this model and cannot be shown on the graph. |
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| 15 | |
Diminishing returns of labor in a typical production function is |
| | A) | a short-run concept only. |
| | B) | due to increases in the labor input while capital is kept constant. |
| | C) | usually preceded by increasing returns to labor. |
| | D) | described, in part, by all of the above. |
| | E) | described, in part, by none of the above since they describe economies of scale. |
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| 16 | |
If your object was to produce as much output as possible with a given short-run production function you would produce where the |
| | A) | average product is the greatest. |
| | B) | marginal product is the greatest. |
| | C) | marginal product is zero. |
| | D) | average product is zero. |
| | E) | marginal product equals the average product. |
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| 17 | |
You own two factories and in factory 1 the average product of labor is 12 bicycles a day and in factory 2 the average product of labor is 18 bicycles a day. This information tells you that you should |
| | A) | move labor from factory 1 to factory 2 to capitalize on the higher average product.. |
| | B) | Move labor from factory 2 to factory 1 to help it increase its average product. |
| | C) | Close down factory 1 and produce all the bicycles in factory 2. |
| | D) | Make no changes until you get more information that would be relevant to the situation. |
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| 18 | |
It is possible to have three types of production isoquants. One would be the typical negatively sloped function with a decreasing slope, a second would be an L shaped function and a third would be a negatively sloped straight line. These three would represent respectively which type of input characteristics? |
| | A) | perfect complements, perfect substitutes, substitutes with diminishing returns. |
| | B) | substitutes with diminishing returns, perfect substitutes, perfect complements |
| | C) | Imperfect complements, perfect complements, perfect substitutes |
| | D) | substitutes with diminishing returns, perfect complements, imperfect complements |
| | E) | None of the above is correct. |
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| 19 | |
If the isoquants of a production surface are sequenced from the origin outward with the numbers, 100, 300, 600, 800, 1000, 1200, 1300, we |
| | A) | Know that there are increasing returns to scale, then constant returns to scale, and finally decreasing returns to scale. |
| | B) | Know that There are constant returns to scale, then increasing returns to scale, and finally decreasing returns to scale. |
| | C) | Know that There are increasing returns to scale over the entire specified range of output. |
| | D) | Know that There are decreasing returns to scale over the entire specified range of output. |
| | E) | Can not know anything about the returns to scale without information about the inputs. |
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| 20 | |
Which statement is true? |
| | A) | The marginal rate of technical substitution of labor for capital (MRTS) at a given point on an isoquant is the slope of the isoquant at that point. |
| | B) | The MRTS is constant along any single isoquant for perfect substitutes in production. |
| | C) | The MRTS is equal to the ratio of the marginal product of labor divided by the marginal product of capital at a given point on an isoquant. |
| | D) | All of the above statements are true. |
| | E) | None of the above statements are true. |
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