Q: A firm is considering hiring an additional worker. The worker's wage is $$100$$ per day, and the marginal product of labor is $$20$$ units per day. If the firm sells its product for $$6$$ per unit, should the firm hire the worker?

Yes, because the marginal revenue ($$6 \times 20 = 120) $$exceeds the wage.

Question 1

Which of the following best describes the difference between the short run and the long run for producers?

Accepted Answer

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

Question 2

Given the production function $$Q=f(L,K)$$, what does $$L$$ represent?

Accepted Answer

$$L$$ represents the quantity of labor used in production.

Question 3

If a firm is experiencing diminishing marginal product of labor, which of the following is true?

Accepted Answer

Each additional worker increases output by a smaller amount than the previous worker.

Question 4

A firm is considering hiring an additional worker. The worker's wage is $$100$$ per day, and the marginal product of labor is $$20$$ units per day. If the firm sells its product for $$6$$ per unit, should the firm hire the worker?

Accepted Answer

Yes, because the marginal revenue ($$6 	imes 20 = 120) $$exceeds the wage.

Question 5

Which of the following best describes economic cost?

Accepted Answer

Economic cost is the sum of explicit cost and implicit cost (opportunity cost).

Question 6

If a firm’s accounting profit is $$50,000$$ and its implicit costs are $$20,000$$, what is its economic profit?

Accepted Answer

$$30,000$$

Question 7

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

Accepted Answer

Foregone salary from choosing to run your own business instead of working elsewhere.

Question 8

A firm’s total fixed cost is $$500$$ and its total variable cost is $$1,500$$ when producing $$100$$ units. What is the average total cost?

Accepted Answer

$$\frac{500 + 1500}{100} = 20$$

Question 9

Which formula correctly calculates average variable cost (AVC)?

Accepted Answer

$$AVC = \frac{Total\ Variable\ Cost}{Quantity}$$

Question 10

If the marginal cost of producing the 101st unit is $$8$$ and the average total cost at 100 units is $$10$$, what will happen to the average total cost if the firm produces the 101st unit?

Accepted Answer

Average total cost will decrease.

Question 11

Which of the following best explains why normal returns are considered in economic profit calculations?

Accepted Answer

Normal returns represent the minimum profit required to keep resources in their current use.

Question 12

A firm’s total cost increases from $$2,000 to$$ $$2,080$$ when output increases from $$400 to$$ $$410$$ units. What is the marginal cost of producing one additional unit?

Accepted Answer

$$8$$

Question 13

Which of the following statements about fixed costs is correct?

Accepted Answer

Fixed costs remain constant regardless of output level.

Question 14

If a firm’s average variable cost is $$5$$ and average fixed cost is $$3 at a $$certain output level, what is the average total cost?

Accepted Answer

$$8$$

Question 15

Which of the following best describes the law of diminishing marginal returns?

Accepted Answer

As more units of a variable input are added to fixed inputs, the marginal product of the variable input eventually decreases.

Question 16

A bakery is deciding whether to hire an additional baker. The marginal product of the baker is $$30$$ loaves per day, and each loaf sells for $$2. $$The baker’s wage is $$50$$ per day. Should the bakery hire the baker?

Accepted Answer

Yes, because the marginal revenue ($$2 	imes 30 = 60) $$exceeds the wage.

Question 17

Which of the following is NOT a component of economic cost?

Accepted Answer

Accounting profit

Question 18

If a firm’s total cost is $$1,200$$ and it produces $$300$$ units, what is its average total cost?

Accepted Answer

$$4$$

Question 19

Which of the following best describes marginal cost?

Accepted Answer

Marginal cost is the change in total cost resulting from a one-unit increase in output.

Production and Cost Concepts in Macroeconomics

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