Multiple Choice Questions: Production and Costs

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1. In any production process the marginal product of labour equals:

a. total output divided by total labour inputs.
b. total output minus the total capital stock.
c. the change in total output resulting from a 'small' change on the labour input.
d. total output produced by labour inputs.

 



2. Which of the following statements best describes the general form of a production function: 

(i) It is a purely technological relationship between quantities of input and quantities of output.

(ii) It represents the technology of an organisation, sector of an economy.

(iii) Prices of inputs or of the output do not enter into the production function.

(iv) It is a flow concept describing the transformation of inputs into output per unit of time.


a. (i),(ii) and (iv)
b. (i) and (ii)
c. (i) and (iv)
d. all of the above

 



3. Which of the following statements describes the presence of diminishing returns. Holding at least one factor constant ....

a. the marginal product of a factor is positive and rising.
b. the marginal product of a factor is positive but falling.
c. the marginal product of a factor is falling and negative.
d. the marginal product of a factor is constant.

 



4. Which of the following statements describes increasing returns to scale:

a. Doubling the inputs used leads to double the output.
b. Increasing the inputs by 50% leads to a 25% increase in output.
c. Increasing inputs by 1/4 leads to an increase in output of 1/3.
d. None of the above.

 



5. If a firm moves from one point on a production isoquant to another, which of the following will not happen.

a. A change in the ratio in which the inputs are combined.
b. A change in the marginal products of the inputs.
c. A change in the rate of technical substitution.
d. A change in the level of output.

 



6. A firm has a production function of the following form Q = K + 2L Where Q is output, K is the capital input and L is the labour input per time period. The wage rate and the rental rate on capital is 1 per unit. The cost minimising output

a. is achieved by producing at any point along the isoquant.
b. is achieved by using labour input only.
c. is achieved by using the capital input only.
d. is impossible to achieve.

 



7. A firm faces the following long run cost function

TC = q3 - 40q2 +450q

Average Cost, AC, will be at its minimum when

a. q = 10, AC = 20.
b. q = 40, AC = 60.
c. q = 40, AC = 10.
d. q = 20, AC = 50.

 



8. A firm faces the following production function

Q = 2K0.5 L0.5

Where Q is output, K is the capital input, which is fixed at 25 units in the short run, and L is the labour input per time period. The wage rate is 2 and the rental rate on capital is 1 per unit. What is the short run total cost?

a. 25 + Q2/100
b. 25 + Q0.5
c. 25 + Q2/50
d. None of the above.

 



9. What is the marginal rate of technical substitution for the following production function?

Q = 10K0.5L0.5

a. 0.5 K / L
b. 0.5 L / K
c. K / L
d. L / K

 



10. If the production function takes the following form

Q = 10K0.5L0.5

and the unit price of capital is 1 and labour is 25, what is the firm's marginal cost?

a. constant and equal to 1.
b. constant and equal to 25.
c. increasing.
d. decreasing.

 



 


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