Factors of Production Quiz

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Questions and Answers

Which of the following are factors of production?

Implicit and explicit costs.

Land, labor, capital, and entrepreneurship. (correct)

Productivity.

Output in a production function.

What does a production function demonstrate?

How total costs increase as labor is added.

How a firm's costs of production increase as it produces more goods.

How a firm's production changes as quantity of labor and other inputs changes. (correct)

How production changes as its unit costs go up.

When a firm achieves technical efficiency, it is typically:

Producing the output where the AVC curve is at a minimum.

Producing the output at the minimum MC curve.

Using the fewest resources to produce a good or service. (correct)

Producing the best combination of goods and services.

Which statement regarding the production function and the production possibilities curve is false?

Both the production function and the production possibilities curve maximize the amount of output attainable. Signup and view all the answers

According to the context, when do diminishing marginal returns first occur?

Third worker. Signup and view all the answers

What does the change in total output associated with one additional unit of input represent?

Marginal physical product. Signup and view all the answers

What does the law of diminishing returns imply?

Marginal physical product of a factor of production diminishes as more of that factor is used. Signup and view all the answers

What do economies of scale primarily result from?

Total cost reductions from using larger operations. Signup and view all the answers

Diseconomies of scale are illustrated by which segment of the cost curve?

The upward-sloping segment of the average total cost curve. Signup and view all the answers

If an additional unit of labor is added, what can be inferred about its marginal physical product (MPP)?

The MPP could be greater than, less than, or zero. Signup and view all the answers

As output increases beyond 10 units, what happens to the average fixed cost?

It continues to decline with increased production. Signup and view all the answers

What is the marginal cost of the 120th unit of output?

$208.00 Signup and view all the answers

At 30 units of output, what is the total variable cost?

$40. Signup and view all the answers

What is the total fixed cost?

$9,600 Signup and view all the answers

When three units of labor are utilized, how many units of output can be produced?

66 units. Signup and view all the answers

What is the total cost of producing 120 units?

$34,560 Signup and view all the answers

At 2 units of output, what is the average variable cost?

$12. Signup and view all the answers

The minimum of the average variable cost curve for specific output levels occurs at which production rate?

3 units per day. Signup and view all the answers

What is the average fixed cost when output is 120 units?

$80.00 Signup and view all the answers

What is the total variable cost when output is 100 units?

$9,600 Signup and view all the answers

The vertical difference between the total cost curve and the total fixed cost curve represents what?

Total variable costs Signup and view all the answers

What do implicit costs include?

Value of resources used where no monetary payment is made Signup and view all the answers

What does economic cost include?

Both implicit and explicit costs Signup and view all the answers

What happens to total production of hamburgers as In and Out Burger increases the number of employees?

Efficiency will suffer as the restaurant becomes too crowded with employees. Signup and view all the answers

What does marginal cost represent?

The change in total cost from producing one additional unit of output. Signup and view all the answers

Which costs are included in total cost?

The sum of fixed cost and variable cost. Signup and view all the answers

Which of the following is most likely to represent a fixed cost?

Property taxes. Signup and view all the answers

How is average total cost calculated?

Total cost divided by quantity produced. Signup and view all the answers

In the long run, which of the following costs can be considered variable?

Rent, wages, and all other costs are variable in the long run. Signup and view all the answers

What causes the average variable cost curve to slope upward with higher output in the short run?

The effect of diminishing returns. Signup and view all the answers

If the marginal cost curve is rising, which statement must be true?

The average total cost curve must be rising. Signup and view all the answers

Which plant should a firm choose if it produces between 600 and 800 units per period?

ATC2 only Signup and view all the answers

Which of the following factors is least likely to increase productivity?

Higher wage rate Signup and view all the answers

What effect does an increase in labor productivity have if labor is a variable input?

A downward shift in the MC curve Signup and view all the answers

The Houston-based funeral giant's profits are most likely due to which of the following?

Economies of scale Signup and view all the answers

What type of decision does Ford's $400 million investment in the Kansas City plant represent?

A long-run production decision Signup and view all the answers

Which of the following best defines 'economies of scale'?

Increasing production leads to lower per-unit costs Signup and view all the answers

If a firm experiences diseconomies of scale, what is likely occurring?

Operational inefficiencies lead to rising costs Signup and view all the answers

In which scenario would a firm most likely face constant returns to scale?

Doubling inputs results in doubled outputs Signup and view all the answers

Study Notes

Review Questions - Chapter 7

Factors of Production: Land, labor, capital, and entrepreneurship.
Production Function: Shows how a firm's production changes as the quantity of labor and other inputs changes.
Technically Efficient Output Level: A firm produces at the minimum of the average variable cost (AVC) curve. This uses the fewest resources to produce the good or service.
Production Function vs. Production Possibilities Curve: The production function describes a single firm's capacity, while the production possibilities curve reflects the entire economy's capacity. The production possibilities curve shows the possible combinations of goods/services given the availability of resources, while the production function describes the amount of output attainable from various levels of inputs. Both aim to maximize the obtainable output.
Diminishing Marginal Returns: Marginal returns decrease as an additional unit of input (worker) is added. This occurs first with the third worker (based on the provided graph).
Marginal Physical Product (MPP): The change in total output associated with adding one additional unit of input.
Marginal Cost (MC): The change in total cost from producing one additional unit of output.
Total Cost: The sum of fixed costs and variable costs.
Fixed Cost: Costs that do not change with the level of output (e.g., property taxes).
Variable Cost: Costs that change with the level of output (e.g., raw materials, labor costs).
Average Total Cost (ATC): Total cost divided by the quantity produced.
Average Variable Cost (AVC): Variable cost divided by the quantity produced.
Average Fixed Cost (AFC): Fixed cost divided by the quantity produced.
Marginal Cost (MC): Crucially, the MC curve intersects the AVC and ATC curves at their minimum points.

Numerical Problem Answers (Based on Graphs and tables):

Marginal Cost of 120th unit: $208
Total fixed cost: $9,600
Total Cost of 120 units: $24,960
Average Fixed Cost at output of 120 units: $80
Total Variable Cost at output of 100 units: $20,000
Minimum of average variable cost curve: based on provided table (2units per day)
Variable Cost of 2 output units: $12

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Test your knowledge on the factors of production with this quiz. Identify and understand the various elements that contribute to economic production. Perfect for students studying economics or anyone interested in basic economic concepts.