Ch.6

Question 1

Efficient production occurs if a firm

Answer 1

a. cannot produce its current level of output with fewer inputs.
b. given the quantity of inputs, cannot produce more output.
c. maximizes profit

Question 2

Limited liability is a benefit to

Answer 2

corporations

Question 3

Joey cuts grass during the summer. He owns one lawn mower. For him, the short run is
equal to

Answer 3

the amount of time it takes to hire an additional employee and buy another lawn
mower

Question 4

Joey cuts grass during the summer. He rents a lawn mower from his dad. Which of the following statements best illustrates the difference between the short run and the long run for Joey?

Answer 4

When Joey acquires more customers, he responds by working more hours. Next
year, he will buy a lawn mower and split the work with his brother

Question 5

Which of the following is least likely to be considered a capital input?

Answer 5

A ten dollar bill

Question 6

If the average productivity of labor equals the marginal productivity of labor, then

Answer 6

the average productivity of labor is at a maximum

Question 7

Which situation is most likely to exhibit diminishing marginal returns to labor?

Answer 7

a factory that hires more workers and never increases the amount of machinery

Question 8

Jennifer is the only employee of her sole proprietorship. She is entertaining the idea of
hiring an additional employee. She knows that on her own she can produce 100 units per
day. Jennifer figures that Applicant A will help her produce 175 units per day whereas Applicant B will help her produce 155 units per day. Which of the following statements is most accurate?

Answer 8

Applicant A has a marginal product of 75 units

Question 9

Isoquants that are downward-sloping straight lines exhibit

Answer 9

a constant marginal rate

of technical substitution.

Question 10

The steeper an isoquant is

Answer 10

the greater is the marginal productivity of labor relative to that of capital

Question 11

Decreasing returns to scale may occur as increasing the amount of inputs used

Answer 11

may cause coordination difficulties

Question 12

Let the production function be q=ALaKb. The function exhibits
decreasing returns to
scale if

Answer 12

a + b < 1

Question 13

Returns to scale is a concept that operates

Answer 13

only in the long run