Question 1

Suppose a mushroom farm employs 3 workers and produces 45 pounds of mushrooms per day. Based on the law of diminishing returns, what is most likely to happen if the farm continues to add more workers in the short run, holding all other inputs constant?

Accepted Answer

The marginal product of each additional worker will eventually decrease.

Question 2

Given the following cost structure for a bakery: monthly rent is $$400, and each worker is paid 200 $$per month. If the bakery employs 2 workers, what is the total cost per month?

Accepted Answer

$800

Question 3

Which of the following best describes the difference between fixed and variable costs in the short run?

Accepted Answer

Fixed costs do not change with output, while variable costs increase as output increases.

Question 4

A small textile shop is an example of which type of industry?

Accepted Answer

Traditional or cottage industry

Question 5

If the marginal product of labor decreases as more workers are hired, but total output is still rising, which economic law is being demonstrated?

Accepted Answer

Law of diminishing returns

Question 6

A bakery produces 840 boxes of pastries per month. If total revenue equals total cost at this output level, what is the economic profit?

Accepted Answer

$0

Question 7

Which of the following is NOT typically a problem faced by small-scale, traditional businesses?

Accepted Answer

Guaranteed market power

Question 8

If a firm’s total cost is given by $$TC = FC + VC$$, where $$FC is $$fixed cost and $$VC is $$variable cost, what is the total cost if $$FC = 400$$ and $$VC = 800$$?

Accepted Answer

$$1,200$$

Question 9

Which of the following best explains why the marginal product of labor eventually declines as more workers are added in the short run?

Accepted Answer

There are fixed inputs that limit the effectiveness of additional workers.

Question 10

A beauty parlor pays a fixed monthly rent and hires workers as needed. Which of the following is a variable cost for the parlor?

Accepted Answer

Wages paid to workers

Question 11

If the average product of labor is calculated as $$AP = \frac{Q}{L}$$, where $$Q is $$total output and $$L is $$the number of workers, what is the average product when $$Q = 54$$ and $$L = 5$$?

Accepted Answer

$$10.8$$

Question 12

Which of the following is a reason why cost of production information is important for a business?

Accepted Answer

It helps determine profitable products and cost-saving methods.

Question 13

A restaurant’s total cost increases from $$1,200 to$$ $$1,400$$ when output increases from $$4 to$$ $$5$$ units. What is the marginal cost of the fifth unit?

Accepted Answer

$$200$$

Question 14

Which of the following statements about the law of diminishing returns is correct?

Accepted Answer

It states that adding more of a variable input to fixed inputs will eventually cause the marginal product to decline.

Question 15

If a firm’s average product of labor is constant as more workers are hired, what does this imply about marginal product?

Accepted Answer

Marginal product equals average product.

Question 16

A grocery store faces high competition and limited access to financial capital. Which of the following strategies could help improve its profitability?

Accepted Answer

Adopting cost-saving production methods

Question 17

If a firm’s total cost is $$TC = 1,600$$ when producing $$980$$ units, and fixed cost is $$400$$, what is the total variable cost?

Accepted Answer

$$1,200$$

Question 18

Which of the following is an example of a short-run decision for a small bakery?

Accepted Answer

Hiring an extra worker for the holiday season

Question 19

If the marginal product of the second worker is higher than the first, but the marginal product of the third worker is lower than the second, what does this indicate?

Accepted Answer

The law of diminishing returns has set in after the second worker.

Question 20

Which of the following best describes a variable cost for a handicraft business?

Accepted Answer

Cost of raw materials used in production

Microeconomics: Production, Costs, and Diminishing Returns – Guided Study

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