MBA 701 Exam 3 Questions Answered Correctly Latest Update 2025-2026
A change in the wage rate paid to the variable factor (labor) will shift the ________.
Question 1Answer
a.
ATC, AVC, and MC curves
b.
MC curve
c.
ATC curve
d.
AVC curve - Answers a.
ATC, AVC, and MC curves
In the short run, labor is typically the variable input, and wages are its cost. When the wage rate
changes, it affects the cost of producing each additional unit of output because labor is used in
every unit of production. MC (Marginal Cost) reflects the cost of producing one more unit. Since
each unit requires labor, a higher wage increases MC, and the curve shifts upward. Since wages
are a major variable cost, a wage increases shifts AVC (Average Variable Cost) up. Because
ATC = AVC + AFC, and AVC is affected by wage changes, ATC also shifts.
Long run decision exit industry if: - Answers P<LAC
Long run decision optimal production level is: - Answers where MR=LMC P> or equal to LAC
Long run decision perfect competition: - Answers P=MR=LMC due to optimal production
decision, P=LAC due to free entry/exit condition (0 long run prof). Since LMC and LAC reaches
intersection where LAC is min, thus P=LAC
Long run decision monopoly: - Answers MR=LMC due to opt prod decision, long run prof can be
zero or positive due to high entry barriers
Long run decision monopolistic comp: - Answers MR-LMC due to opt prod decision, P=LAC due
to free entry/exit condition (0 long run prof), but unlike perf comp P does not equal min LAC
Average Product of labor (AP)= - Answers Q/L, as AP ^ MP>AP, as AP decreases MP<AP, AP is
max when AP=MP
,Marginal product of labor (MP)= - Answers Change in quat/change in labor, will decrease as
labor increases
A short-run production function assumes that
Question 2Answera.
the level of output is fixed.
b.
all inputs are fixed inputs.
c.
both "the level of output is fixed" and "at least one input is a fixed input".
d.
both "at least one input is a fixed input" and "all inputs are fixed inputs".
e.
at least one input is a fixed input. - Answers e.
at least one input is a fixed input.
The short run is defined as a period during which at least one of a firm's inputs is fixed. Not all
inputs are fixed in the short run—labor, for example, is typically considered a variable input, while
physical capital (like buildings and machinery) is usually fixed.
Diminishing marginal product refers to the decrease in
Question 4Answera.
profit that results from increases in output.
b.
marginal product that results from increases in the variable input.
c.
average total cost that results from decreases in input prices.
d.
average product that results from increases in the variable input. - Answers b.
marginal product that results from increases in the variable input.
, Diminishing marginal product refers to the principle that, as more units of a variable input (like
labor) are added to a fixed amount of other inputs (like capital), the additional output produced
by each additional unit of the variable input will eventually decline. This is a short-run concept
that reflects the idea that, beyond a certain point, workers may start getting in each other's way
or have less capital to work with, leading to a falling marginal product. It does not refer to profits,
input prices, or average product, which makes the other options incorrect.
If a firm is producing a given level of output in an economically efficient manner, then it must be
the case that
Question 5Answera.
both "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".
b.
this output level is the most that can be produced with the given level of inputs.
c.
None of the choices are correct.
d.
this is the lowest-cost method of producing that output.
e.
each input is producing its maximum marginal product. - Answers a.
both "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".
When a firm achieves economic efficiency, by definition, it is using the lowest-cost method to
produce a given level of output. For firm reaches economic efficiency, it also reaches technical
efficiency—the firm is producing the maximum possible output from the available inputs.
If average product is increasing, then marginal product
Question 6Answera.
must be less than average product.
b.
must be decreasing.
A change in the wage rate paid to the variable factor (labor) will shift the ________.
Question 1Answer
a.
ATC, AVC, and MC curves
b.
MC curve
c.
ATC curve
d.
AVC curve - Answers a.
ATC, AVC, and MC curves
In the short run, labor is typically the variable input, and wages are its cost. When the wage rate
changes, it affects the cost of producing each additional unit of output because labor is used in
every unit of production. MC (Marginal Cost) reflects the cost of producing one more unit. Since
each unit requires labor, a higher wage increases MC, and the curve shifts upward. Since wages
are a major variable cost, a wage increases shifts AVC (Average Variable Cost) up. Because
ATC = AVC + AFC, and AVC is affected by wage changes, ATC also shifts.
Long run decision exit industry if: - Answers P<LAC
Long run decision optimal production level is: - Answers where MR=LMC P> or equal to LAC
Long run decision perfect competition: - Answers P=MR=LMC due to optimal production
decision, P=LAC due to free entry/exit condition (0 long run prof). Since LMC and LAC reaches
intersection where LAC is min, thus P=LAC
Long run decision monopoly: - Answers MR=LMC due to opt prod decision, long run prof can be
zero or positive due to high entry barriers
Long run decision monopolistic comp: - Answers MR-LMC due to opt prod decision, P=LAC due
to free entry/exit condition (0 long run prof), but unlike perf comp P does not equal min LAC
Average Product of labor (AP)= - Answers Q/L, as AP ^ MP>AP, as AP decreases MP<AP, AP is
max when AP=MP
,Marginal product of labor (MP)= - Answers Change in quat/change in labor, will decrease as
labor increases
A short-run production function assumes that
Question 2Answera.
the level of output is fixed.
b.
all inputs are fixed inputs.
c.
both "the level of output is fixed" and "at least one input is a fixed input".
d.
both "at least one input is a fixed input" and "all inputs are fixed inputs".
e.
at least one input is a fixed input. - Answers e.
at least one input is a fixed input.
The short run is defined as a period during which at least one of a firm's inputs is fixed. Not all
inputs are fixed in the short run—labor, for example, is typically considered a variable input, while
physical capital (like buildings and machinery) is usually fixed.
Diminishing marginal product refers to the decrease in
Question 4Answera.
profit that results from increases in output.
b.
marginal product that results from increases in the variable input.
c.
average total cost that results from decreases in input prices.
d.
average product that results from increases in the variable input. - Answers b.
marginal product that results from increases in the variable input.
, Diminishing marginal product refers to the principle that, as more units of a variable input (like
labor) are added to a fixed amount of other inputs (like capital), the additional output produced
by each additional unit of the variable input will eventually decline. This is a short-run concept
that reflects the idea that, beyond a certain point, workers may start getting in each other's way
or have less capital to work with, leading to a falling marginal product. It does not refer to profits,
input prices, or average product, which makes the other options incorrect.
If a firm is producing a given level of output in an economically efficient manner, then it must be
the case that
Question 5Answera.
both "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".
b.
this output level is the most that can be produced with the given level of inputs.
c.
None of the choices are correct.
d.
this is the lowest-cost method of producing that output.
e.
each input is producing its maximum marginal product. - Answers a.
both "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".
When a firm achieves economic efficiency, by definition, it is using the lowest-cost method to
produce a given level of output. For firm reaches economic efficiency, it also reaches technical
efficiency—the firm is producing the maximum possible output from the available inputs.
If average product is increasing, then marginal product
Question 6Answera.
must be less than average product.
b.
must be decreasing.
