Question

1. Long run average costs rise as output (q) increases

Select one:

a. Economy of Scale

b. Decreasing Returns to Scale

c. Increasing Returns to Scale

d. Constant Returns to Scale

e. Diseconomy of Scale

2.

A production function where the MRTS is constant at all points. Isoquants are straight lines.

Select one:

a. Production Function

b. Isoquant

c. Perfect Substitutes Production Function

d. Isocost Line

e. Technology Function

f. Fixed-Proportions Production Function

3.

A production function with L-shaped isoquants so that only one combination of labor and capital can be used.

Select one:

a. Isocost Line

b. Technology Function

c. Isoquant

d. Fixed-Proportions Production Function

e. Production Function

f. Perfect Substitutes Production Function

4.

Doubling inputs increases output by less than double.

Select one:

a. Economy of Scale

b. Increasing Returns to Scale

c. Decreasing Returns to Scale

d. Constant Returns to Scale

e. Diseconomy of Scale

5.

The amount that an additional unit adds to total cost.

Select one:

a. Fixed Cost

b. Average Variable Cost

c. Marginal Cost

d. Average Total Cost

6.

The amount by which one input can be reduced when one extra unit of another input is used.

Select one:

a. Marginal Product of Capital

b. Perfect Complements in Production

c. Average Product Function

d. Marginal Product of Labor

e. Marginal Rate of Technical Substitution

7.

The principle that as the use of an input increases, with other inputs fixed, the resulting additions to output will eventually decrease.

Select one:

a. Constant Marginal Returns

b. Decreasing Returns to Scale

c. Diminishing Marginal Returns

d. Diseconomy of Scale

e. Increasing Marginal Returns

8.

Doubling inputs doubles output.

Select one:

a. Decreasing Returns to Scale

b. Increasing Returns to Scale

c. Diseconomy of Scale

d. Economy of Scale

e. Constant Returns to Scale

9.

Variable cost divided by output.

Select one:

a. Average Variable Cost

b. Marginal Cost

c. Fixed Cost

d. Average Total Cost

10.

A curve showing all the possible combinations of inputs that yield a given amount of output.

Select one:

a. Isocost Line

b. Technology Function

c. Isoquant

d. Production Function

Answer 1

1) Option E. LRATC is a U-shaped curve where average cost falls as output rises when there are economies of scale and average cost rises as output rises when there are diseconomies of scale

2) Option C. Since MRTS is a constant value it implies each unit of one input has perfect substitutability for a given unit of the other input so that isoquant are straight lines

3) Option D. In this case MRTS is not defined in the usual manner, it is 0 as well as infinite because the two inputs are used together in a fixed ratio

4) Option C. This is because the technology is cost increasing so that ATC rOptiises as output is produced

5) Option C

6) Option E

7) Option C

8) Option E

9) Option A

10) Option C