Question

1.

The typical total product curve

Question 13 options:

	a) reaches its highest point at the output level where marginal product is zero.
	b) has an inflection point where the technology switches from increasing to diminishing marginal returns.
	c) is falling when there are negative marginal returns.
	d) starts at the origin
	e) all of the above

Anytime a firm faces a situation where MR < MC, the firm should

Question 15 options:

	a) increase output.
	b) lower price.
	c) reduce output.
	d) shut down.
	e) none of the answers presented are correct.

Jamal operates in the perfectly competitive paper toothpick industry, where the market price is $2 per unit. At Jamal’s profit maximizing output level of 10 units, he faces an average total cost of $4 and an average variable cost of $1. Which of the following is true?

Question 19 options:

	a) Jamal should shut down since he will lose $20 if he produces the 10 units.
	b) Jamal should produce the 10 units since he will earn a profit of $10 by doing so.
	c) Jamal should decrease his output to get his costs low enough to break even.
	d) Jamal should produce the 10 units even though he will lose $10 since he would lose $20 if he shut down.
	e) Jamal should produce the 10 units even though he will lose $20 since he would lose $30 if he shut down.

If the marginal product of labor decreases as employment increases,

Question 22 options:

	a) there are increasing returns to scale.
	b) there are positive externalities in employment.
	c) there are diminishing marginal returns to labor.
	d) there are increasing marginal returns to capital.
	e) there are decreasing wages.

If a firm is experiencing increasing marginal returns to its only variable input, then

Question 30 options:

	a) the total product curve is increasing at an increasing rate.
	b) the marginal product curve is rising.
	c) the total cost curve is increasing at a decreasing rate.
	d) the marginal cost curve is falling.
	e) all of the above.

Answer 1

13. e) all of the above
(All the statements are true about TP curve as it starts from the origin, reaches its maximum when MP = 0 and is declining when MP is negative.)

15. c) reduce output.
(When MR > MC, then output should be reduced.)

19. e) Jamal should produce the 10 units even though he will lose $20 since he would lose $30 if he shut down.
(Loss = (ATC-P)Q = (4-2)*10 = 2*10 = 20)

22. c) there are diminishing marginal returns to labor.
(As MPL decreases so there are diminishing marginal returns to labor.)

30. e) all of the above.
(All the statements are true.)