Purdue
University North Central
Economics
210
Review Questions Chapter 5
- Supply Decisions
(1) The law of diminishing returns implies
that at some output level:
(a) marginal costs
must rise.
(b) marginal costs
must fall.
(c) total costs
must fall.
(d) average total
costs must fall.
Consider the following data in answering Questions (2) and
(3).
Units
of Labor Units of Output
0 0
1 8
2 20
3 30
4 36
(2) Referring to the table above, what is
the marginal physical product of the first unit of labor?
(a) 0
(b) 8
(c) 12
(d) 20
(3) Referring to the table above, with which
unit of labor do diminishing marginal returns first
appear?
(a) The first.
(b) The second.
(c) The third.
(d) The fourth.
(4) If an additional unit of labor costs $10,
and this additional unit of labor has a marginal physical product of 20 units
of output, the marginal cost is:
(a) $0.50
(b) $2.00
(c) $10.00
(d) $200.00
Consider Figure 1 in answering Question (5).
Figure
1
(5) The Marginal
Physical Product of the fourth unit of labor input is approximately:
(a) 1
(b) 6
(c) 10
(d) 20
(6) Whenever marginal cost is less than
average total cost, then greater output means:
(a) total cost is
declining.
(b) average total
cost must decline.
(c) total variable
cost must decline.
(d) total fixed
cost must decline.
Consider the following information in answering Questions
(7) and (8).
Art
Gallery Costs
Output
(shows per year) 0 1 2 3
Display
space ($ per year) 10,000 10,000 10,000 10,000
Art
handlers ($ per year) 0 10,000 20,000 30,000
Receptionists
($ per year) 50,000 50,000 50,000 50,000
Contractors
($ per year) 0 10,000 20,000 30,000
Advertising
($ per year) 0 60,000 60,000 100,000
(7) Considering the costs in the table,
which of the following represents all of the fixed costs of the art gallery?
(a) Display space and receptionists.
(b) Display space and advertising.
(c) Art handlers, contractors, and
advertising.
(d) Art handlers and contractors.
(8) Which of the following in the table
represents all of the variable costs of the art gallery?
(a) Display space and receptionists.
(b) Display space, receptionists, and
advertising.
(c) Art handlers, contractors, and
advertising.
(d) Art handlers and contractors.
Consider the data in the table below to answer Questions (9)
and (10).
Total Total Total Marginal
Quantity Fixed Costs Variable Costs Costs Costs
0 100 ----- ---- ----
1 --- ---- 120 ---
2 --- --- --- 10
3 --- 50 --- ---
4 --- --- --- 30
(9) Total fixed costs in the table are equal
to:
(a) $50/3
(b) $50
(c) $100
(d) $120
(10) The marginal cost of the first unit of
output in the table is:
(a) $10
(b) $20
(c) $100
(d) $120