Question

Diminishing marginal productivity

a. means that adding one more unit of the variable input will reduce total product.

b. occurs when the marginal product curve begins to slope downward

c. occurs eventually because each additional unit of the variable unit has, on average, fewer units of the fixed input with which to work.

d. both a and c

e. both b and c

7. The marginal rate of technical substitution is

a. the rate at which the firm can substitute labor for capital while holding total cost constant.

b. the rate at which the firm can substitute labor for capital while holding output constant.

c. the slope of the isocost curve.

d. both a and c

e. none of the above

8. Suppose you run a pizza shop and currently have two employees. If you hire a third employee, your output of pizzas per day rises from 55 to 65. If you hire a fourth employee, output rises to 75 per day. A fifth and sixth employee would cause output to rise to 90 and 95 per day, respectively. Pick the correct statement:

a. Diminishing returns set in with the hiring of the fourth worker.

b. Diminishing returns set in with the hiring of the sixth worker.

c. Diminishing returns set have not yet set in because output is still increasing.

d. Diminishing returns set in with the hiring of the fifth worker.

10. If a firm is producing a given level of output in a technically efficient manner, then it must be the case that

a. each input is producing its maximum marginal product.

b. this output level is the most that can be produced with the given levels of inputs.

c. this is the lowest cost method of producing that output.

d. both b and c

e. all of the above

11. A short-run cost function assumes that

a. no input is fixed in supply.

b. the level of output is fixed.

c. all inputs are fixed in supply.

d. both a and b

e. both b and c

f. none of the above

Answer 1

6 . Option E , b and c

7. Option B ,  the rate at which the firm can substitute labor for capital while holding output constant.

8. option d. Diminishing returns set in with the hiring of the fifth worker.

10. Option B , this output level is the most that can be produced with the given levels of inputs.

11. F. none of the above, a short run cost function assumes at least one input is fixed.