Open Book Assessment Production Cost-C

INSTITUTE OF PUBLIC ENTERPRISE 9th Sep-2017
Group Assessment Test Production & Cost Analysis
1). The marginal product of the variable input:

A) is always positive
B) typically falls then rises
C) is equal to the total product divided by the total amount of the variable input employed
D) none of the above
2) Which of the following statements about the short-run production function is true?
A) MP always equals AP at the maximum point of MP.

B) MP always equals zero when TP is at its maximum point.
C) TP starts to decline at the point of diminishing returns.
D) When MP diminishes, AP is at its minimum point.
E) None of the above is true.
Answer the questions 3,4,5, based on the following information.
Number of Workers Units of Ouput

0 0
1 40
2 90
3 126
4 150
3) The marginal product of the fourth worker is:

A) 150 units of output
B) 24 units of output
C) Negative
D) 36 units of output
4) Average product is at a maximum when the number of workers that are hired is:
A) 1
B) 2
C) 3
D) 4
5) Output (Total Product) is maximized when

A) average productivity is at its maximum.
B) the "law of diminishing returns" sets in.
C) marginal productivity is zero.
D) marginal productivity is at its maximum.
6) If a firm finds itself operating in Stage I, it implies that
A) variable inputs are extremely expensive.

B) it overinvested in fixed capacity.
C) it underinvested in fixed capacity.
D) fixed inputs are extremely expensive.
7) A firm that operates in Stage III of the short-run production function
A) has too much fixed capacity relative to its variable inputs.

B) has too little fixed capacity relative to its variable inputs.
C) has greatly overestimated the demand for its output.
D) should try to increase the amount of variable input used.
8) Which of the following indicate when Stage I ends and Stage II begins in the short‐run
production?
A) when AP = 0 B) when MP = 0
C) when MP = AP D) when MP starts to diminish
9) Which of the following indicates when Stage II ends and Stage III begins in the short-run
production function?
A) when AP = 0 B) when MP = 0
C) when MP = AP D) when MP starts to diminish
11) Stage III of the short-run Production Function is
A) the most efficient mix of inputs.

B) the least costly level of output.
C) where additional units of inputs will lead to less output.
D) where additional units of inputs will lead to more output.
12) The "Law of Diminishing Returns" states that

A) additional inputs will reduce output.
B) additional inputs will decrease average productivity.
C) the supply of inputs is becoming scarce.
D) additional inputs will lead to less additional output.
13) Which of the following is not true about the law of diminishing returns?
A) It is a short-run phenomenon.
B) It refers to diminishing marginal product
C) It will have an impact on the firm's marginal cost.
D) It divides Stage I and II of the production process.
E) All of the above are true.
14) When the law of diminishing returns takes effect
A) firms must add increasingly more input if they are to maintain the same extra amount of
output.
B) firms must add decreasingly more input if they are to maintain the same extra amount of
output.
C) more input must be added in order to increase its output.
D) a firm must always try to add the same amount of input to the production process.
15) Decreasing returns to scale
A) indicates that an increase in all inputs by some proportion will result in a decrease in
output.
B ) must always occur at some point in the production process.
C) is directly related to the law of diminishing returns.
D) All of the above are true.
E) None of the above is true.
16) Increasing Returns to Scale results when

A) in the long-run, an increase in inputs will lead to an increase in the average products of
inputs.
B) in the long run, an increase in inputs will lead to an equivalent increase in output.
C) labor becomes more skilled.
D) All of the above.
17) The perfect substitution of two inputs implies that

A) two inputs can be substituted at a ratio of 1 to 1.
B) one input can be substituted for another up to some point.
C) two inputs can be substituted at some constant ratio.
D) one input can be substituted for another.
18) In economic theory, if an additional worker adds less to the total output than previous
workers hired, it is because
A) there may be less that this person can do, given the fixed capacity of the firm.
B) he/she is less skilled than the previously hired workers.
C) everyone is getting in each other's way.
D) the firm is experiencing diminishing returns to scale.
19) When is it not in the best interest of a company to hire additional workers in the short run?
A) when the average good of labor is decreasing

B) when the firm is in Stage II of the production process
C) when the marginal revenue good equals zero
D) when the wage rate is equal to or greater than labor's marginal revenue good
20) An isoquant indicates

A) different combinations of two inputs that can be purchased for the same amount of
money.
B) different combinations of two inputs that can produce the same amount of output.
C) different combinations of output that can be produced with the same amount of input.
D) different combinations of output that cost the same amount to produce.
21) Marginal rates of technical substitution (MRTS) represent
A) the optimum combinations of inputs.

B) cost minimizing combinations of inputs.
C) the degree to which one input can replace another without output changing.
D) All of the above.
22) Which of the following is the best example of two inputs that would exhibit a constant
marginal rate of technical substitution?
A) trucks and truck drivers

B) natural gas and oil
C) personal computers and clerical workers
D) company employed computer programmers and temporary supplemental computer
programmers
23) Which of the following combination of inputs is most closely reflective of decreasing
marginal rate of technical substitution (MRTS)?
A) oil and natural gas B) sugar and high fructose corn syrup
C) computers and clerks D) keyboards and computers
24) Isocost curves represent
A) least cost combinations of inputs.

B) combinations of inputs that can be purchased given their prices and the funds available.
C) a producers cost function.
D) None of the above.
25) If a firm used a combination of inputs that was to the left of its isocost line, it would indicate
that
A) it is exceeding its budget.

B) it is not spending all of its budget.
C) it is operating at its optimal point because it is saving money.
D) None of the above.
Analytical Questions
Number Of Output
Workers
0 0
1 50
2 110
3 300
4 450
5 590
6 665
7 700
8 725
9 710
10 705
The table above shows the weekly relationship between output and number of workers for a
factory with a fixed size of plant.
a. Calculate the marginal product of labor.
b. At what point does diminishing returns set in?
c. Calculate the average product of labor.
d. Find the three stages of production.

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INSTITUTE OF PUBLIC ENTERPRISE 9th Sep-2017

Group Assessment Test Production & Cost Analysis

1). The marginal product of the variable input:

A) MP always equals AP at the maximum point of MP.

Answer the questions 3,4,5, based on the following information.

Number of Workers Units of Ouput

3) The marginal product of the fourth worker is:

5) Output (Total Product) is maximized when

A) variable inputs are extremely expensive.

7) A firm that operates in Stage III of the short-run production function

A) has too much fixed capacity relative to its variable inputs.

11) Stage III of the short-run Production Function is

A) the most efficient mix of inputs.

12) The "Law of Diminishing Returns" states that

16) Increasing Returns to Scale results when

17) The perfect substitution of two inputs implies that

A) when the average good of labor is decreasing

20) An isoquant indicates

21) Marginal rates of technical substitution (MRTS) represent

A) the optimum combinations of inputs.

A) trucks and truck drivers

24) Isocost curves represent

A) least cost combinations of inputs.

A) it is exceeding its budget.

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