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1 | |
Production, as economists deal with it, |
| | A) | involves the process of motivating labour 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 beans in a doughnut shop. |
| | 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 labour than does the maximum marginal product. |
| | B) | the marginal product of labour increases until total product peaks. |
| | C) | an employer is likely to increase employment until average product of labour is zero. |
| | D) | the marginal product of labour equals the average product of labour 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 shows first a range of employment with increasing marginal productivity of the variable input(s) and then a range of employment with decreasing marginal productivity of the variable input(s), or "diminishing returns," because |
| | A) | the first 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 problem of aging capital. |
| | C) | the factory has too few workers for its size at low output levels, so that as the number of workers increases the mix of capital and labour inputs is more effective and increasing marginal productivity results. However, as labour increases further, with crowding and a lower quantity of equipment per worker, each new labourer begins to add less to output than the average for the preceding labourers. |
| | D) | of all of the above. |
| | E) | of none of the above. |
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5 | |
If the owner of a service station truthfully told a mechanic looking for work that he would not hire another mechanic even 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 units, produced by 10 workers. Plant 2 has a total product of 100 units, 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 diminishing returns in production. |
| | B) | labour 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" in production. |
| | B) | mean that as inputs expand proportionately, the average cost of production falls. |
| | C) | are present when isoquants numbered 10, 20, 30, 40, and so on, get closer together as output expands. |
| | D) | are described by none of the above. |
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10 | |
With labour inputs on the horizontal axis and capital inputs on the vertical axis, the marginal rate of technical substitution: |
| | A) | falls as more labour is hired. |
| | B) | can be measured by the absolute value of 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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2002 McGraw-Hill Higher Education