CB2400 Micro-Economics
Theory of Producer
Total Product, Marginal Product, Average Product
Labor Total Marginal Average
(workers per product product product
day) (units per
day)
0 0 0 0
1 2 2 2
2 8
3 12
4 15
5 16 1
1. In the above table, the total product that is produced when the firm employs four
workers is
A) 3.
B) 3.75.
C) 8 .
D) 15.
2. In the above table, the marginal product is greatest when the
A) first worker is hired.
B) second worker is hired.
C) third worker is hired.
D) fourth worker is hired.
3. In the above table, the average product is less than the marginal product
A) when the first worker is hired.
B) when the second worker is hired.
C) when the third worker is hired.
D) for the entire range of output given.
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Labor Total product
(workers) (books sold per hour)
0 0
1 10
2 24
3 40
4 58
5 73
6 83
7 87
8 89
9 90
10 90
4. The above table shows the short-run total product schedule for the campus book
store. When the fifth employee is hired, the
A) marginal product is increasing and is greater than average product.
B) marginal product is increasing and is less than average product.
C) marginal product is decreasing and is greater than average product.
D) marginal product is decreasing and is less than average product.
5. If a firm’s marginal product of labor is less than its average product of labor, then
an increase in the quantity of labor it employs definitely will
A) decrease its total product.
B) decrease its average product of labor.
C) increase its marginal product of labor.
D) not change its average product of labor.
6. The law of diminishing marginal returns implies that, with the use of capital
fixed, as the use of labor rises,
A) total product will fall eventually.
B) the marginal product of labor will fall eventually.
C) the total product of labor will fall below the marginal product of labor.
D) the average product of labor will fall eventually.
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7. Which of the following statements is true?
A) The marginal and average product curves intersect at the maximum level of
output.
B) At every output level the marginal product curve lies above the average product
curve.
C) The marginal product and average product curves intersect when average
product is at its maximum.
D) The marginal product curve always has a positive slope.
8. Which curve intersects the AP curve at its maximum point?
A) The MP curve.
B) The TP curve.
C) Both MP and TP curve.
D) None of the above.
9. If the price of labor increases and we are looking at a graph with capital on the
vertical axis and labor on the horizontal, the
A) isocost line will become steeper.
B) isoquants will become steeper.
C) isoquants will become flatter.
D) isocost line will become flatter.
10. For given input prices, isocost lines farther from the origin are associated with
A) lower costs.
B) the same costs.
C) higher costs.
D) initially lower, then higher costs.
11. If the price of labor increases, in order to minimize the costs of producing a given
level of output, the firm manager should use
A) less of labor and more of capital.
B) less of labor and less of capital.
C) more of labor and more of capital.
D) more of labor and less of capital.
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Short Question:
Question 1:
Consider an electric home appliance company whose marginal product of labor and
marginal product of capital are respectively given by
𝐾 𝐿
𝑀𝑃𝐿 (𝐿, 𝐾) = √ 𝐿 and 𝑀𝑃𝐾 (𝐿, 𝐾) = √𝐾
for any input choice where 𝐿 and 𝐾 are the total labor and capital employed. The
current input prices are 𝑤 = 100 and 𝑟 = 100, respectively.
a) What is the marginal rate of technical substitution of labor at (𝐿, 𝐾) = (10,50)?
b) Suppose that the company currently hires (𝐿, 𝐾) = (10,20) to produce 200 units
of output. Is production cost minimized at this input’s combination? If production
cost is not minimized, what should the company do to minimize the production
cost?