Chapter 5

1) 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

B

2) A production function tells the firm
A) the maximum output it can expect to produce with a given mix of inputs.
B) the average output it can expect to produce with a given mix of inputs.
C) the minimum output it can expect to produce with a given mix of inputs.
D) the average level of production for other firms in the industry.

A

3) Which of the following is NOT a factor of production?
A) labor
B) capital
C) money
D) materials

C

4) Which of the following is least likely to be considered a capital input?
A) a sewing machine
B) a tractor
C) a telephone
D) a ten dollar bill

D

5) Which of the following is least likely to be considered an input to production?
A) a supervisor's time
B) an integrated circuit fabrication plant
C) wind
D) None of the above.

D

6) Which of the following is an input to the production process?
A) a janitor's time
B) a cement mixer
C) Both A and B
D) None of the above.

C

7) Which of the following is an output of production?
A) a haircut
B) a U.S. savings bond
C) a share of Acme Corporation stock
D) None of the above.

A

8) Which of the following is NOT an output of the production function?
A) a haircut
B) a share of Acme Corporation stock
C) a case of soda pop
D) an extra-large pepperoni pizza

B

9) A firm engaging in efficient production, using current technology, \________ produce its
current level of production with \________ inputs.
A) could; fewer
B) cannot; fewer
C) cannot, more
D) cannot; different

B

10) A firm that engages in efficient production
A) cannot produce the same output with fewer inputs.
B) could produce the same output with fewer inputs if it wanted to.
C) is not interested in profit maximization.
D) uses old technology to minimize costs.

A

11) 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.

D

12) In the long run, all factors of production are
A) variable.
B) fixed.
C) materials.
D) rented.

A

13) A factor of production that cannot be easily changed in the relevant time period is called a
A) short-run factor.
B) fixed input.
C) variable input.
D) production anchor.

B

14) A factor of production that can be easily changed in the relevant time period is called a
A) fixed input.
B) temporary input.
C) variable input.
D) substitution input.

C

15) Which of the following is likely to have the shortest long run?
A) a nail salon
B) a construction firm
C) an electric company
D) a container ship operations company

A

16) Which of the following is likely to have the longest long run?
A) a beauty salon.
B) a pizza parlor.
C) a road construction firm.
D) an airline.

D

17) Which of the following statements is TRUE?
A) Labor is always a variable input.
B) Capital is always a fixed input.
C) Materials are always variable inputs.
D) None of the above.

D

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18) Which of the following statements is TRUE?
A) Labor is always a variable input, whereas Capital is always a fixed input.
B) Labor is always a fixed input, whereas Capital is always a variable input.
C) Labor can be a fixed input., and Capital can be a variable input.
D) Labor can be a fixed input, and Capital is always a fixed input.

C
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19) Which of the following statements is TRUE in the short run?
A) Generally, labor is a fixed input.
B) Generally, capital is a fixed input.
C) Raw materials are generally considered to be fixed inputs.
D) None of the above.

B
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20) Which of the following statements is TRUE in the short run?
A) Generally, labor is a variable input.
B) Generally, capital is a variable input.
C) Raw materials are generally considered to be fixed inputs.
D) Whether or not an input is considered fixed is dependent on the price paid for the input.

A
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21) Which of the following inputs is normally considered to be variable in the short run?
A) labor
B) capital
C) money
D) time

A
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22) Which of the following inputs is normally considered to be fixed in the short run?
A) labor
B) capital
C) money
D) All of the above.

B
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23) Which of the following inputs is normally considered to be variable in the short run?
A) labor
B) raw materials
C) capital
D) Both A and B

D
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24) 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.

C
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25) 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.

B
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26) The length of the short-run is the same for all firms.

False. Firms differ in their ability to change the amount of capital they employ.
Therefore, the short-run period is likely different for firms in different industries.
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27) Explain why labor might not always be a variable input.

In the real world units of labor are not identical. Many firms employ highly specialized
units of labor. Their supply might be very inelastic so that the firm cannot easily increase the
amount of this type of labor.
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5.2 Short-Run Production
1) Total Product is
A) the change in total product resulting from an extra unit of labor, holding other factors
constant.
B) the ratio of output to the number of workers used to produce that output.
C) the amount of output that can be produced by a given amount of labor.
D) equal to the marginal product of labor when the average product is increasing.

C
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2) The Marginal Product of Labor is
A) the change in total product resulting from an extra unit of labor, holding other factors
constant.
B) the ratio of output to the number of workers used to produce that output.
C) the amount of output that can be produced by a given amount of labor.
D) equal to the marginal product of labor when the average product is increasing.

A
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3) Given the production function q \= 4L + K, what is the marginal product of labor when capital
is fixed at 50?
A) 54
B) 4
C) 50
D) 250

B
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4) Given the production function q \= 4L + K, what is formula for the marginal product of labor?
A) 4
B) 4 + K
C) 4K
D) Cannot be determined with the information given.

A
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5) Given the production function q \= 4LK, what is the marginal product of labor when capital is
fixed at 25?
A) 4K
B) 100
C) 100K
D) 100L

B
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6) Given the production function q \= 1.37LK, what is the marginal product of labor?
A) 1.37
B) 0
C) 1.37K
D) Cannot be determined with the information given.

C
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7) At any given point on the curve, the slope of the total product curve always equals
A) the ratio of the marginal product and the average product.
B) the change in input divided by the change in output.
C) the average product of the input.
D) the marginal product of the input.

D
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8) Jennifer is the only employee of her sole proprietorship. She is entertaining the idea of hiring
an additional employee. She knows that on her own she can produce 100 units per day. Jennifer
figures that Applicant A will help her produce 175 units per day whereas Applicant B will help
her produce 155 units per day. Which of the following statements is MOST accurate?
A) Applicant B has a marginal product of 75 units.
B) Applicant B has an average product of 77.5 units.
C) Applicant A has a marginal product of 75 units.
D) Applicant A has an average product of 87.5 units.

C
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9) The Average Product of Labor is
A) the change in total product resulting from an extra unit of labor, holding other factors
constant.
B) the ratio of output to the number of workers used to produce that output.
C) the amount of output that can be produced by a given amount of labor.
D) equal to the marginal product of labor when the average product is increasing.

B
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10) Average product will fall as long as
A) marginal product is falling.
B) it exceeds marginal product.
C) it is less than marginal product.
D) the number of workers is increasing.

B
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11) If the average product of labor equals the marginal product of labor, then
A) the average product of labor is at a maximum.
B) the marginal product of labor is at a maximum.
C) Both A and B above.
D) Neither A nor B above.

A
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12) If the marginal product of labor is constant for all levels of output, then the average product
of labor
A) is constant.
B) equals the marginal product of labor.
C) Both A and B above.
D) Either A or B above but not both.

C
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13) The above table shows a short-run production function for Albert's Pretzels. The marginal
product of labor
A) rises then falls as the amount of capital increases.
B) falls then rises as the amount of labor increases.
C) is greater than or equal to the average product of labor for all amounts of labor.
D) is less than or equal to the average product of labor for all amounts of labor.

D
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14) The above table shows the short-run production function for Albert's Pretzels. The marginal
product of labor for the third worker is
A) 6.
B) 8.
C) 24.
D) not known from the information provided.

A
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15) The above table shows the short-run production function for Albert's Pretzels. The marginal
product of labor equals the average product 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.

C
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16) The above table shows the short-run production function for Albert's Pretzels. The law of
diminishing marginal product
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.

A
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17) The above table shows the short-run production function for Albert's Pretzels. The average
product of labor
A) increases first and then decreases.
B) decreases first and then increases.
C) decreases throughout.
D) increases throughout.

C
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18) 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 workers constant
D) None of these situations will result in diminishing marginal returns to labor.

B
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19) 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.

B
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20) Diminishing marginal returns lead to diminishing returns
A) when marginal returns fall but remain positive.
B) only in theory.
C) when marginal returns become negative.
D) when labor exceeds capital.

C
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21) The law of diminishing marginal returns
A) implies that the marginal product of labor must fall.
B) requires using superior technology to increase output.
C) means that total output will always fall.
D) None of the above.

A
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22) 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 product equals his average product.
B) Joey's marginal product diminishes by 0.2 for each additional hour worked.
C) Joey's average product is constant.
D) Joey's marginal product is constant.

B
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23) 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, a larger percentage of today's labor force works in the agricultural
sector.
D) All of the above.

B
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For the following, please answer "True" or "False" and explain why.
24) The actual time length of the short run is determined by when diminishing marginal returns
start.

False. The actual time length of the short run is a function of how long it would take to
adjust all inputs.
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25) If marginal productivity is decreasing as more labor is hired, then average productivity must
be decreasing as well.

False. The change in average productivity is not determined by the change in marginal
productivity. Average productivity can be increasing even when marginal productivity is
decreasing. Average productivity can only be decreasing when marginal productivity is below
average productivity.
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26) Explain the difference between diminishing returns to labor and diminishing marginal returns
to labor.

Diminishing returns to labor means that an increase in the number of labor units will
decrease the amount of output. Diminishing marginal returns means that additional units of labor
increase output at a decreasing rate.
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27) Suppose the production function for T-shirts can be represented as q \= L0.25K0.75. Show
that the marginal productivity of labor diminishes in the short run.

In the short run, MPL \= 0.25 ∗ (q/L). The change in MP with respect to L equals
d(MPL)/dL \= -0.25 ∗ q/L2. Thus, for all levels of labor hired, MPL falls as L increases.
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5.3 Long-Run Production
1) 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.

B
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2) If capital is fixed, but a firm varies labor
A) the firm stays on the same isoquant.
B) the firm moves to a new isoquant.
C) the firm might move to a new isoquant, depending on how much labor is added.
D) the firm's output will be dependent on the marginal rate of technical substitution.

B
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3) 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.

C
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4) The steeper an isoquant is
A) the greater is the marginal product of labor relative to that of the marginal product 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.

A
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5) Isoquants
A) hold utility constant.
B) hold capital constant.
C) hold labor constant.
D) hold output constant.

D
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6) Which of the following is NOT a property of isoquants?
A) They do not cross.
B) The closer they are to the origin, the higher the level of output.
C) They have a downward slope.
D) They are "thin."

B
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7) 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 fixed proportion.
C) capital is not productive.
D) labor is not productive.

C
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8) 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 varying proportions.

A
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9) 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.

D
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10) Which of the following is an example of a production function with fixed proportions?
A) putting orange juice into cartons
B) mowing lawns
C) cutting hair
D) teaching economics

A
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11) If you are running a winery and you need one bottle for every 750ml of wine, then your
production function
A) is inefficient.
B) is considered "fixed-proportion."
C) will have a diminishing marginal rate of technical substitution.
D) has downward-sloping, straight line isoquants.

B
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12) 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 the above figure best represents the
isoquants for Joey's Lawncutting Service when units of capital per day is on the vertical axis and
units of labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D

A
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13) In the above figure, Graph D with units of capital on the vertical axis and units of labor on
the horizontal axis implies that
A) the marginal product of labor is increasing as more labor is employed.
B) the marginal product of labor is decreasing as more labor is employed.
C) the capital and labor are perfect substitutes.
D) capital and labor have to be employed in fixed proportions.

A
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14) 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 the above figure best represents
the isoquants for lectures in microeconomics when units of capital per day is on the vertical axis
and units of labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D

C
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15) Lectures in microeconomics can be delivered either by an instructor (labor) or a movie
(capital) or any combination of both. Yet, it gets harder and harder to substitute more movies for
an instructor the more movies are already used. Which graph in the above figure best represents
the isoquants for lectures in microeconomics when units of capital per day is on the vertical axis
and units of labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D

B
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16) Which graph in the above figure represents the isoquants where, as the amount of labor used
increases and the amount of capital used decreases, the marginal product of labor rises (units of
capital per day is on the vertical axis and units of labor per day is on the horizontal axis)?
A) Graph A
B) Graph B
C) Graph C
D) Graph D

D
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17) The slope of an isoquant
A) gives the substitutability of inputs while keeping output constant.
B) shows how output varies while keeping inputs constant.
C) is independent of the marginal product of capital.
D) shows the firm's returns to scale.

A
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18) The marginal rate of technical substitution always equals
A) the slope of the total product curve.
B) minus the ratio of the marginal products of inputs.
C) the change in output due to a change in the amount of one input.
D) the distance between two isoquants.

B
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19) The marginal rate of technical substitution shows
A) how many machines can be replaced by computers, keeping output constant.
B) how many computers are needed to replace workers so that output can increase.
C) the rate at which technology advances change marginal productivity.
D) how many workers can do the job of one computer, keeping output constant.

D
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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.

A
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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.

B
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22) If a firm hires one worker and eliminates four units of capital, and hires one more worker and
replaces three more units of capital, keeping output constant, then
A) workers and capital are perfect substitutes.
B) the firm is operating inefficiently because capital is more efficient than workers.
C) the firm is experiencing a diminishing marginal rate of technical substitution.
D) there are decreasing returns to scale.

C
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23) If a firm fired one worker and lost 12 units of production and decides to add one more unit of
capital, then to remain on the same isoquant what must be TRUE?
A) The MPK of the next unit of capital added equals 12.
B) The firm must force the other workers to work more.
C) The firm will experience a decline in output.
D) The marginal rate of technical substitution is greater than 12.

A
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24) If capital increases by two units, and MRTS is 1, then what is the MPL?
A) 2
B) 1/2
C) 1
D) Not enough information given.

D
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25) If MPK \= 3, and MRTS \= -4 what is MPL?
A) 12
B) -12
C) 4/3
D) -4/3

A
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26) If MPL \= 3, and MRTS \= -4 what is MPK?
A) 12
B) -12
C) 3/4
D) -3/4

C
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For the following, please answer "True" or "False" and explain why.
27) Unlike indifference curves, isoquants can intersect.

False. By the same logic as with indifference curves, the intersection implies the same
level of output. Since output increases as one moves toward the northeast on the isoquant map,
moving from the intersection one isoquant shows higher output and the other shows lower. This
is contradictory.
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28) Suppose that additional units of capital affect the marginal productivity of labor. This is not
unrealistic. Word processors increase the marginal productivity of secretaries. On the other hand,
robotic equipment can completely replace a worker and, thereby, lower the marginal productivity
of labor. Given this possibility, determine the conditions under which isoquants will not be
convex (i.e.: concave).

The slope of the isoquant equals -MPL/MPK. To be concave, the slope of the isoquant
becomes steeper as L increases. For this to be the case, MPL would have to increase more than
MPK as labor increases and capital falls. That means the decrease in capital causes MPL to rise
more than the increase in labor causes MPL to fall. The large inverse relationship implies that
capital is replacing labor for this to be the case.
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29) During the "computer revolution" of the 1980s and 1990s, many firms replaced old
technology with new technology. What might explain why firms don't change technology as
quickly today?

The marginal rate of technical substitution of old technology for new technology was
low in the past, but the marginal rate of technical substitution of new technology for newer
technology is higher today.
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5.4 Returns to Scale
1) 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.

A
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2) 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 depending on the industry of the firm.

B
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3) If a firm doubles inputs and produces three times the output, then there are
A) constant returns to scale.
B) diminishing marginal product.
C) decreasing returns to scale.
D) increasing returns to scale.

D
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4) If a firms cuts inputs in half, and output falls by more than half, then there are
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) decreasing marginal returns.

A
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AACSB: Analytical Thinking

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5) If a firm triples inputs and produces twice the output, then there are
A) constant returns to scale.
B) diminishing marginal product.
C) decreasing returns to scale.
D) increasing returns to scale.

C
Skill: Conceptual
AACSB: Analytical Thinking

New
6) If a firm triples inputs and produces three times the output, then there are
A) constant returns to scale.
B) diminishing marginal product.
C) decreasing returns to scale.
D) increasing returns to scale.

A
Skill: Conceptual
AACSB: Analytical Thinking

New
7) Decreasing returns to scale may occur because increasing the amount of inputs used
A) increases specialization.
B) always increases the amount of output produced.
C) may cause coordination difficulties.
D) increases efficiency.

C
Skill: Conceptual
AACSB: Analytical Thinking

Old
113
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8) The table in the above figure 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 between 100 and 200 units of output.
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.

A
Skill: Analytical
AACSB: Analytical Thinking

Old
9) The table in the above figure 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.

A
Skill: Analytical
AACSB: Analytical Thinking

Old
10) The table in the above figure 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.

A
Skill: Analytical
AACSB: Analytical Thinking

Old
114
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11) The above figure 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.

A
Skill: Analytical
AACSB: Analytical Thinking

Old
12) The above figure 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.

B
Skill: Analytical
AACSB: Analytical Thinking

Old
115
Copyright © 2017 Pearson Education, Inc.
13) The above figure shows the isoquants for producing steel. Constant returns to scale are
A) present when producing less than 10,000 tons.
B) present when producing between 10,000 and 20,000 tons.
C) present when producing more than 20,000 tons.
D) never present.

B
Skill: Analytical
AACSB: Analytical Thinking

Old
14) The above figure shows the isoquants for producing steel. When producing more than 20,000
tons there are
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) economies of scale.

B
Skill: Analytical
AACSB: Analytical Thinking

Old
15) The above figure shows the isoquants for producing steel. When producing less than 10,000
tons there are
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) diseconomies of scale.

A
Skill: Analytical
AACSB: Analytical Thinking

Old
16) The above figure shows the isoquants for producing steel. When producing between 10,000
and 20,000 tons there are
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) economies of scale.

C
Skill: Analytical
AACSB: Analytical Thinking

Old
116
Copyright © 2017 Pearson Education, Inc.
Product Labor Capital
Tobacco
products 0.18 0.33
Paper products 0.44 0.65
Transportation
equipment 0.44 .048
Furniture 0.60 0.40
Electronic
equipment 0.49 0.51
Petroleum 0.30 0.88
Food 0.43 0.48
Clothing 0.70 0.30
Primary metal 0.51 0.73
17) According to the table above, paper product production exhibits
A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) varying returns to scale.

C
Skill: Analytical
AACSB: Analytical Thinking