Choose the best answer for each problem and create a list showing your choice for each problem.

problem 1: In short run production

a) All factors are fixed.
b) At least one factor is fixed.
c) All factors are variable.
d) One factor is fixed and the other is quasi-fixed.
e) None of the above.

problem  2: In long run production

a) All factors are variable.
b) Two factors are variable.
c) Only one factor is fixed.
d) All factors are fixed.
e) One factor is fixed and the other is variable.

problem 3: When marginal product is at its maximum

a) Marginal cost is also at its maximum.
b) Marginal revenue product is also at its maximum.
c) Marginal cost is at its minimum.
d) Average product is at its minimum.
e) None of the above.

problem 4: If a firm has total revenues of ten million, explicit costs of eight million and implicit costs of three million, then:

a) It is generating an accounting profit and incurring an economic loss.
b) It is generating an economic profit and incurring an accounting loss.
c) It is generating both an accounting and economic profit.
d) It is incurring both an accounting and economic loss.
e) Can’t determine from the information available.

problem 5: Increasing returns to scale imply

a) Decreasing average fixed cost.
b) Increasing average fixed cost.
c) All costs are declining.
d) Declining average total cost.
e) Increasing average total cost.

problem 6: Decreasing returns to scale imply

a) Decreasing average variable cost.
b) Increasing average total cost.
c) Increasing average fixed cost.
d) Constant average total cost.
e) Constant average variable cost.

problem 7: All production occurs in:

a) Stage 1 of production.
b) Stage 2 of production.
c) Stage 3 of production.
d) Only a and b.
e) Stage 4 of production.

Qustion 8: In Stage 2 of production

a) Average total cost is declining.
b) Average fixed cost is increasing.
c) Average variable cost is declining.
d) Marginal cost is increasing.
e) Marginal cost is decreasing.

problem 9: An isoquant displays:

a) All possible ways to produce a given quantity of output.
b) All possible ways to vary technological inputs.
c) All possible ways to exploit a firm’s learning curve.
d) All possible ways to exploit a firm’s comparative advantage.

problem 10: L shaped isoquants imply

a) A perfect substitute production relationship between inputs.
b) A perfect substitute production relationship between outputs.
c) A perfect complementary production relationship between inputs.
d) A quasi substitute production relationship between inputs.
e) Output must be increasing faster than inputs.

problem 11: The optimal input mix implies:

a) That all output is increasing at an increasing rate.
b) That the marginal product of the inputs divided by their prices are equal.
c) That the marginal cost of the inputs is declining at a declining rate.
d) That  increasing returns to scale is inevitable.
e) That decreasing returns to scale is inevitable.

problem 12: If an industry’s MES is 20 percent

a) Then there is an 80 percent inefficiency in the industry.
b) Then there is room for five efficiently functioning firms in the industry.
c) Then there is an economies of scope issue in production.
d) Then there is an opportunity for increasing output at no additional cost.

problem 13: Economies of scope imply

a) That all costs increase as the firm’s scope increases.
b) That all costs decrease as the firm’s scope decreases.
c) That average total costs may decrease as a firm’s scope increases.
d) That average fixed costs are not relevant to production decisions.
e) None of the above.

problem 14: If a firm is on a learning curve this implies

a) That the firm is still learning about its market.
b) That the firm is enjoying a comparative advantage in the industry.
c) That the firm is not altogether efficient.
d) That the firm’s cumulative average total costs are declining.
e) That the firm’s cumulative average fixed costs are increasing.

problem 15: The Law of Diminishing Marginal Returns suggests

a) That average total costs will go up and then down.
b) That average total costs will continually decline as more output is produced.
c) That marginal product will beyond some point begin to decline.
d) That marginal product is subject to an increasing cost situation.
e) That marginal cost and average variable cost are continually declining.