Question

1) Consider a firm that uses only capital and labor. In the short-run the firm:

A. Will never face diminishing returns to labor

B. Faces diminishing returns to labor because capital cannot be changed

C. Faces increasing returns to labor because capital is variable

D.Faces diminishing returns to capital because labor can be changed

2) Tim started a lawn mowing business during summer break using his family's lawn mower, which statement best explains the shape of the production function?

A. As Tim adds more hours to working each week, the additional lawns he can mow in those additional hours begins to fall

B. Tim has purchased a second lawn mower, but he cannot use both at once.

C. The marginal product of capital is negative.

D. Tim gets lazy as he works more hours

3) The average product of labor is measured as the number of units of output divided by the total labor input at each level of labor. The marginal product of labor is measured as the change in the total output as one more unit of labor is added. Suppose that the marginal product of labor is below the average product, how should this affect the average product?

A. The average product should decrease

B. The average product should increase

C. The average product will either increase or decrease based on the amount of effort the labor puts into the job

D. The average product should stay constant

4) Suppose Lisa starts driving for Uber as a part-time job to supplement her income as a home-based web designer. When working as a web-designer she can make $25 per job and each day and can complete 2 additional jobs in the first hour of work but by the eighth hour she can only produce an additional 0.5 jobs. What hourly rate would Lisa need driving for Uber to induce her to drive for Uber in that 8th hour instead of web designing?

A. At least $12.50 per hour

B. At most $8 per hour

C.Less than $10 per hour

D.Between $10 and $12 per hour

5) The conclusion that firms in perfect competition reach productive efficiency in the long-run results from:

A. Producing as long as P exceeds AVC

B. Producing where MR > MC

C. Producing where the ATC curve reaches its minimum point

D. Producing where the ATC exceeds the MC

6) The profit maximizing rule MR = MC applies to:

A. perfect competitors only.

B. all firms.

C. all firm types except perfect competitors.

D. monopolists only.

7) Suppose the price is currently at $15 in this competitive industry. We would expect that:

A. Firms will exit until the supply curve for the market shifts from Supply B to Supply A.

B. Firms will enter until the supply curve for the market shifts from Supply A to Supply C.

C. Firms will enter until the supply curve for the market shifts from Supply A to Supply B.

D. Firms will exit until the supply curve for the market shifts from Supply C to Supply B.

8) At the profit-maximizing output for a monopolist, price:

A. may be greater than or equal to average total cost but will never be less than average total cost.

B. always exceeds average total cost.

C. is less than marginal cost.

D. equals marginal cost.

E. exceeds marginal cost.

9) The key difference between a monopoly and competition is:

A. Monopolies cannot earn a profit

B. In competition, there are barriers to entry which cause the firm to face a downward sloping demand curve

C. In a monopoly there is some barrier to entry that allows the monopolist to set price higher than marginal cost and could earn a profit in the long-run

D. In competition, firms earn a higher profit in the long run because they have an incentive to minimize costs

Answer 1

1) Option B. Capital is fixed in the short run so firm can change only labor. Due to diminishing returns there are reduecd marginal products of labor as more labor is added

2) Option A This again shows diminishing returns where there is a reduecd marginal product of labor as more labor is added

3) Option A Whenever MP > AP, AP rises and when MP < AP AP falls.

4) By the eighth hour she can only produce an additional 0.5 jobs which is worth $12.50. Hence the hourly rate that Lisa would need driving for Uber to induce her to drive for Uber in that 8th hour instead of web designing should be at least $12.50 per hour. Option A

5) Option C

6) Option B

8) Option E

9) Option C