MBA 701 ECON EXAM QUESTIONS AND
CORRECT ANSWERS.
A change in the wage rate paid to the variable factor (labor) will shift the
ATC, AVC, and MC curves
A short-run production function assumes that
at least one input is a fixed input.
Diminishing marginal product refers to the decrease in
marginal product that results from increases in the variable input
If a firm is producing a given level of output in an economically efficient manner, then it
must be the case that
this is the lowest-cost method of producing that output AND this output level is the most that can
be produced with the given level of inputs.
If average product is increasing, then marginal product
must be greater than average product
Suppose a firm is hiring 20 workers at a wage rate of $60. The average product of labor is
30, the last worker added 12 units to output and total fixed cost is $3600. What is the
average total cost?
$8
Suppose that the firm's only variable input is labor. When 50 workers are used, the
average product of labor is 50 and the marginal product of labor is 75. The wage rate is $80
and the total cost of the fixed input is $500. Which of the following is true.
Average variable cost is decreasing.
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 80 per day. A fifth and sixth employee would cause output to rise to 90 and
95 per day, respectively. Pick the correct statement:
Diminishing marginal product of labor sets in with the hiring of the fifth worker.
The marginal cost (MC) curve intersects the
ATC and AVC curves at their minimum points.
The marginal product of labor
is less than the average product of labor when the average product of labor is decreasing AND is
negative when adding another unit of labor decreases output.
Which of the following best describes the difference between short-run and long-run cost
behavior?
In the short run, at least one input is fixed, so firms face both fixed and variable costs; in the long
run, all inputs are variables and all costs become variable.
Which of the following is an example of diminishing marginal product of labor?
The additional output produced by a firm decreasing as more workers are hired.
Which of the following is the difference between variable and fixed costs?
Variable costs of a firm are zero after a firm shuts down (produce nothing) whereas, the firm
continues to incur the fixed costs of production in the short run.
Which of the following is true for a firm that enjoys economies of scale?
Average total cost is falling as output increases
Which of the following statements is false?
In the short run all inputs are fixed.
Production
creation of goods/services from inputs/resources
Production function
CORRECT ANSWERS.
A change in the wage rate paid to the variable factor (labor) will shift the
ATC, AVC, and MC curves
A short-run production function assumes that
at least one input is a fixed input.
Diminishing marginal product refers to the decrease in
marginal product that results from increases in the variable input
If a firm is producing a given level of output in an economically efficient manner, then it
must be the case that
this is the lowest-cost method of producing that output AND this output level is the most that can
be produced with the given level of inputs.
If average product is increasing, then marginal product
must be greater than average product
Suppose a firm is hiring 20 workers at a wage rate of $60. The average product of labor is
30, the last worker added 12 units to output and total fixed cost is $3600. What is the
average total cost?
$8
Suppose that the firm's only variable input is labor. When 50 workers are used, the
average product of labor is 50 and the marginal product of labor is 75. The wage rate is $80
and the total cost of the fixed input is $500. Which of the following is true.
Average variable cost is decreasing.
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 80 per day. A fifth and sixth employee would cause output to rise to 90 and
95 per day, respectively. Pick the correct statement:
Diminishing marginal product of labor sets in with the hiring of the fifth worker.
The marginal cost (MC) curve intersects the
ATC and AVC curves at their minimum points.
The marginal product of labor
is less than the average product of labor when the average product of labor is decreasing AND is
negative when adding another unit of labor decreases output.
Which of the following best describes the difference between short-run and long-run cost
behavior?
In the short run, at least one input is fixed, so firms face both fixed and variable costs; in the long
run, all inputs are variables and all costs become variable.
Which of the following is an example of diminishing marginal product of labor?
The additional output produced by a firm decreasing as more workers are hired.
Which of the following is the difference between variable and fixed costs?
Variable costs of a firm are zero after a firm shuts down (produce nothing) whereas, the firm
continues to incur the fixed costs of production in the short run.
Which of the following is true for a firm that enjoys economies of scale?
Average total cost is falling as output increases
Which of the following statements is false?
In the short run all inputs are fixed.
Production
creation of goods/services from inputs/resources
Production function
