Chapter 7 Multiple Choice Quiz

. Which of the following is an example of a capital input?

A. Money.

B. Shares of stock.

C. Long-term bonds.

D. A hammer.

. Which of the following is an example of an intermediate product?

A. A personal computer.

B. A barrel of crude oil.

C. A sports car.

D. A house.

. Which of the following is not an assumption associated with the definition of a production function?

A. Technology remains constant.

B. Both inputs and outputs are measured in monetary units.

C. The function shows the maximum level of output possible with a given combination of inputs.

D. All units of the inputs are homogeneous.

. The marginal product of labor is equal to

A. the additional labor required to produce one more unit of output.

B. average product when average product is at a minimum.

C. the additional output produced by hiring one more unit of labor.

D. the slope of a ray drawn from the origin to a point on the total product curve.

. The average product of labor is equal to

A. the additional labor required to produce one more unit of output.

B. marginal product when average product is at a minimum.

C. the additional output produced by hiring one more unit of labor.

D. the slope of a ray drawn from the origin to a point on the total product curve.

. The output elasticity of labor is

A. equal to one at the level of output where average product is at a maximum.

B. the percentage change in labor required to produce one more unit of output.

C. equal to the ratio of total product to the quantity of labor employed.

D. a measure of the percentage change in output that can result when the quantity of labor is held constant.

. The point of inflection on the total product curve corresponds to the level of output where

A. Stage II of production begins.

B. average product is at a maximum.

C. marginal product is at a maximum.

D. All of the above are correct.

. The law of diminishing returns

A. is reflected in the negatively sloped portion of the marginal product curve.

B. is the result of specialization and division of labor.

C. applies in both the short run and the long run.

D. All of the above are correct.

. Stage II of production begins at the point

A. of inflection of the total product curve.

B. where average and marginal product are equal.

C. where total product is at a maximum.

D. where marginal product is at a maximum.

. The marginal revenue product of labor for a firm

A. will increase if the price of the firm's output increases.

B. is the firm's demand curve for labor.

C. will decrease if the firm hires more labor.

D. All of the above are correct.

. An isoquant that is

A. further from the origin represents greater output.

B. flatter represents the trade-offs between inputs that are poor substitutes.

C. negatively sloped represents input combinations associated with Stage I of production.

D. All of the above are correct.

. The absolute value of the slope of a convex isoquant

A. is equal to the marginal rate of technical substitution.

B. is equal to the ratio of the marginal products of the two inputs.

C. decreases from left to right.

D. All of the above are correct.

. The combination of inputs is optimal

A. at points of tangency between isoquants and isocosts.

B. if the marginal revenue product is equal to the marginal resource cost for all inputs.

C. if the marginal rate of technical substitution between every pair of inputs is equal to the ratio of the prices of those inputs.

D. All of the above are correct.

. An isocost line will be shifted further away from the origin

A. if the prices of both inputs increase.

B. if total cost increases.

C. if there is an advance in technology.

D. All of the above are correct.

. If isoquants are plotted on a graph with capital measured on the vertical axis and labor on the horizontal axis, then an increase in the wage rate will cause the isocost line

A. to become steeper and the optimal quantity of labor will decrease.

B. to become steeper and the optimal quantity of labor will increase.

C. to become flatter and the optimal quantity of labor will decrease.

D. to become flatter and the optimal quantity of labor will increase.

. A line that connects all points where the marginal rate of technical substitution is equal to the ratio of input prices is called the

A. input demand curve.

B. total product curve.

C. expansion path.

D. isocost line.

. Suppose that three isoquants that represent 10, 20, and 30 units of output are plotted on a graph and a straight line is drawn from the origin through the isoquants. If the portion of the line between the isoquants that represent 10 and 20 units of output is longer than the portion of the line between the isoquants that represent 20 and 30 units of output, then the firm represented by these isoquants

A. has engaged in product innovation.

B. is experiencing increasing returns to scale.

C. is experiencing decreasing returns to scale.

D. will maximize profits by producing 10 units of output.

. If the output elasticities of all inputs used by a firm are summed together, then the total

A. will be greater than one if returns to scale are decreasing.

B. will be equal to one if returns to scale are constant.

C. will be less than one if returns to scale are increasing.

D. All of the above are correct.

. Which of the following is not a characteristic of production technologies that can be described by the Cobb-Douglas production function?

A. The marginal product of an input divided by the average product of that input is constant.

B. The exponents will sum to one if returns to scale are constant.

C. Linear regression can be used to estimate the parameters of the function.

D. All of the above are characteristics of the Cobb-Douglas production function.

. If the marginal product of labor is 2, the marginal product of capital is 4, the wage rate is $3, the rental price of capital is $6, and the price of output is $1.50, then the firm should

A. Increase output by hiring more labor, more capital, or both.

B. Hold output constant, but hire more labor and less capital.

C. Decrease output by reducing the quantity of capital, reducing the number of units of labor, or both.

D. None of the above is correct.

. Comparative advantage is the basis for

A. efficient production.

B. international trade.

C. economies of scale.

D. the capital-labor tradeoff.

. A country that has an abundance of cheap labor will tend to

A. import goods that are produced using a lot of labor.

B. refrain from international trade entirely.

C. export goods that are produced using a lot of labor.

D. export goods that are produced using little labor.

. Intra-industry trade refers to

A. international trade in differentiated products.

B. the exchange of information between firms in the same industry.

C. the exchange of information between firms in different industries.

D. barter between competing firms.

. Which of the following acronyms refers to the use of computers to design new products?

A. CDP

B. ADP

C. CAM

D. CAD

. By using computers to design and manufacture products, firms are able to

A. reduce production costs.

B. reduce the optimal lot size.

C. reduce the time required to introduce new products.

D. All of the above are correct.

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