Question

How is the short-run determined?

a. It is a set amount of time.

b. It is the period when all inputs are variable.

c. It is the period when at least one input is fixed.

d. There is no distinction between short and long-run.

When is total product maximized?

a. When marginal product is zero.

b. When marginal product is at a maximum.

c. When average product is negative.

d. When average and total product intersect.

What is the principal-agent problem?

a. The difficulty of making agents act in the interest of principals.

b. It is an incentive problem that firm's may attempt to fix with profit sharing.

c. Takes place when your employees do "really only about 15 minutes of actual work" per week.

d. All of the above.

What is the law of diminishing returns?

a. Additional units of variable inputs provide more and more additional product in the short-run.

b. Additional units of fixed inputs provide less and less additional product in the short-run.

c. Additional units of variable inputs provide less and less additional product in the long-run.

d. Additional units of variable inputs provide less and less additional product in the short-run.

What is a sunk cost?

a. A cost that enters the production decision making of the firm in the short run.

b. A cost that is incurred and unrecoverable.

c. A cost that is recoverable.

d. None of the above.

How do you determine fixed cost from total variable cost and total cost?

a. Graphically, fixed cost is the vertical distance between total costs and total variable costs.

b. You cannot, average variable costs need to be know.

c. Fixed cost equals total cost minus total variable cost.

d. Two answers are correct.

Answer 1

1> c. It is the period when at least one input is fixed.

Reason

In short-run, one input cost must be fixed by definition.

2> a. When marginal product is zero.

Reason

After the marginal product becomes negative, it will only decrease the total output if we further increase the input.

3> d. All of the above.

Option c would be an example of principal-agent problem and others are the definitions.

4> d. Additional units of variable inputs provide less and less additional product in the short-run.

This is true by definition