Question

1. According to the law of diminishing returns, the:

a. total product of an input must eventually decline
b. average produt of an input must always increase
c. marginal product of an input must eventually decline

d. marginal product of an input must eventually rise

2. An isocost line shows the:

a. input combinations that can be purchased with a given outlay of funds

b. costs of inputs needed to produce along an isoquant

c. costs of inputs needed to produce along an expansion path

d. output combinations that can be produced with a given otulay of funds

3. Opportunity costs are more closely reflected in:

a. historical costs

b. current market prices

c. sunk costs

d. fixed costs

4. The firm's expansion path shows

a. how the profit-maximizing input bundle changes, as output changes holding relative input prices constant

b. how the cost-minimizing input bundle changes as output changes, holding relative input prices constant

c. how the cost-minimizing input bundle changes as the profit-maximizing level of output changes

d. how the price of labor varies as output changes, holding the amount of capital fixed

5. Which of the following statements with respect to a Cobb-Douglas production function is not true?

a. MPK and MPL depend on the quantity of both K and L used

b. the exponent of each input refers to its output elasticity

c. the sum of the exponents determine the type of returns the production function exhibits

d. the sum of the exponents represent the expansion path

Answer 1

1. Option c, As utility or satisfaction decreases with increase in units
2. Option a, Shows all possible combinations of inputs can be bought for a fixed budget
3. Option a, Because it reflects the market value at that time
4. Option a. It is the optimal combination of output inorder to achieve maximum profit at constant prices
5. Option d. The sum of exponents shows the degree of returns to scale in production.