Question 1

Which of the following best describes the economic objective of a firm in microeconomics?

Accepted Answer

To maximize profits, where profit is defined as $$P = TR - TC$$

Question 2

Given the production function $$Y = A L^a K^b$$, if $$a \u003c 1$$, what does this imply about the marginal product of labour?

Accepted Answer

The marginal product of labour decreases as more labour is added (diminishing returns)

Question 3

A firm’s total cost is given by $$TC = FC + VC. If $$fixed costs are $$30$$ and variable costs are $$200$$, what is the total cost?

Accepted Answer

$$TC = 230$$

Question 4

If the marginal product of labour (MPL) is $$400$$ and the wage rate ($$w) is$$ $$50$$, what is the marginal cost (MC) of producing one more unit of output?

Accepted Answer

$$MC = \frac{w}{MPL} = \frac{50}{400} = 0.125$$

Question 5

Which of the following statements about the short run and long run in economics is correct?

Accepted Answer

In the short run, at least one input is fixed; in the long run, all inputs are variable

Question 6

Julie Johnson’s photocopying store hires 3 workers and produces 2200 copies. What is the average product of labour (APL)?

Accepted Answer

$$APL = \frac{2200}{3} \approx 733.33$$

Question 7

If a firm’s marginal cost curve intersects its average total cost curve at the minimum point of the average total cost curve, what does this indicate?

Accepted Answer

The average total cost is at its lowest value

Question 8

Suppose the wage rate is $$600$$ and the marginal revenue product of labour (MRPL) is $$1000. $$What should the firm do?

Accepted Answer

Hire more workers

Question 9

Which of the following is an example of an implicit cost?

Accepted Answer

Foregone salary from not working elsewhere

Question 10

If the marginal product of labour is decreasing but still positive, what happens to total output as more workers are hired?

Accepted Answer

Total output increases at a decreasing rate

Question 11

A firm’s cost minimization condition is $$\frac{MPL}{w} = \frac{MPK}{r}. $$What does this mean in practice?

Accepted Answer

The firm should equalize the marginal product per dollar spent on each input

Question 12

If Julie Johnson’s store produces 2900 copies with 5 workers and the total cost is $$290$$, what is the average total cost per copy?

Accepted Answer

$$ATC = \frac{290}{2900} = 0.10$$

Question 13

Which of the following best describes economies of scale?

Accepted Answer

Long-run average costs fall as output increases

Question 14

If the price of the product falls, what happens to the marginal revenue product of labour (MRPL), assuming marginal product remains unchanged?

Accepted Answer

MRPL decreases

Question 15

Which of the following factors would shift the labour demand curve to the right?

Accepted Answer

An increase in technology that makes workers more productive

Question 16

If a firm’s long-run average cost curve is flat as output increases, what is this called?

Accepted Answer

Constant returns to scale

Question 17

Suppose a firm faces the following costs: fixed cost $$FC = 30$$, variable cost $$VC = 250$$, and produces $$2900$$ units. What is the average fixed cost (AFC)?

Accepted Answer

$$AFC = \frac{30}{2900} \approx 0.010$$

Question 18

If the marginal cost (MC) of producing an additional copy rises sharply after 2900 copies, what does this suggest about the production process?

Accepted Answer

The firm is experiencing diseconomies of scale

Question 19

Which of the following best explains why top professional athletes earn higher wages than university lecturers?

Accepted Answer

The marginal revenue product of labour (MRPL) for athletes is higher

Technology, Production, and Costs; The Markets for Labour and Other Factors of Production

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