Tutorial Chapter 5/Part 1/Microeconomics / ECON1003
Answers
Section A: Multiple Choice Questions
1. When plotting marginal and average product curves, the ___________ product curve always crosses
the __________ product curve at its ___________.
A. average variable, average total; minimum
B. average variable, marginal; maximum
C. marginal, average variable; minimum
D. marginal, average total; maximum
2. Which of the following statements is the main difference between ‘short run’ and ‘long run’?
A. The law of diminishing marginal returns applies in the long run, not the short run.
B. All resources are fixed in the short run, while all resources are variables in the long run.
C. All resources are variables in the long run, while at least one resource is fixed in the short
run.
D. Fixed costs are more important to decision making in the long run than they are in the short run.
3. The law of diminishing marginal returns states that ___________.
A. beyond some point the extra utility derived from additional units of products will yield the
consumer lesser and lesser satisfaction
B. when extra units of a variable input are added to a fixed resources, the extra or marginal
product will decline beyond some point
C. the demand for goods produced by purely competitive industries is down sloping
D. a competitive firm’s long-run average cost curve will be U-shaped
4. Which of the following statements on the relationship between total product (TP), average product
(AP) and marginal product (MP) is incorrect?
A. TP reaches a maximum when the MP of the variable input becomes zero.
B. AP reaches a maximum, before TP reaches a maximum.
C. AP Continues to rise, so long as TP is rising.
D. MP cuts AP at the maximum AP.
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Tutorial Chapter 5/Part 1/Microeconomics / ECON1003
Answer question 5 and 6 based on the following graph.
5. Curves A, B and C are __________ product curves, respectively.
A. total, average and marginal
B. total, marginal and average
C. marginal, average and total
D. average, marginal and total
6. Which of the following statements is implied by the above graph?
A. Total product is at a minimum when the marginal product is zero.
B. Total product is at a maximum when marginal product is at a maximum.
C. Average product is increasing when the marginal product lies below the average product.
D. Average product is increasing when the marginal product lies above the average product.
7. When output increases in higher proportions than the increases in inputs, the returns to scale
is___________.
A. decreasing
B. increasing
C. negative
D. constant
8. ‘If the variable input is added to some fixed inputs, beyond some point, the resulting extra output or
marginal product will decline.’ This statement describes___________.
A. diseconomies of scale
B. the law of diminishing returns
C. economies and diseconomies of scale
D. the law of diminishing marginal utility
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Tutorial Chapter 5/Part 1/Microeconomics / ECON1003
Answer questions 9 and 10 based on the following table.
Number of workers Total product Marginal product
0 0 -
1 3 3
2 5
3 12
4 15
5 1
9. When this shoe manufacturing firm employs two workers, the___________.
A. total product is 4
B. total product is 20
C. average product is 4
D. average product is 10
10. The marginal product of the 4th worker is ___________ of output.
A. 3 units
B. 5 units
C. 3.8 units
D. 3.2 units
11. The law of diminishing returns sets in at ___________ of the following graph.
A. point A
B. point B
C. point C
D. point D
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Tutorial Chapter 5/Part 1/Microeconomics / ECON1003
12. The marginal product curve and average product curve intersects___________.
A. where marginal product equals zero
B. where total product is at a maximum
C. at the maximum point of the average product curve
D. at the maximum point of the marginal product curve
13. When the average product curve is rising, ___________.
A. the marginal product curve lies above the average product curve
B. the marginal product curve lies below the average product curve
C. the marginal product curve cuts the average product curve
D. none of the above
14. In the short run, product curves have all the following characteristics, except
A. total product is at its maximum when marginal product equals zero.
B. total products begin to decrease when average products begin to decrease.
C. average product is at its maximum when average product equals marginal product.
D. when the average product equals the marginal product and both are positive, then total product
must be rising.
15. It is impossible for total product to be__________when marginal product is___________.
A. positive; negative
B. decreasing; positive
C. increasing; increasing
D. increasing; decreasing
16. Production function shows the relationship between___________.
A. cost and input
B. cost and output
C. input and output
D. wages and profit
17. If the units of a variables factor are increased on a fixed factor, after a point, the marginal product of
the variable factor___________.
A. Increases
B. Diminishes
C. Remains constant
D. None of the above
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Tutorial Chapter 5/Part 1/Microeconomics / ECON1003
18. Suppose a firm increased its input by 10%, while its output decreased by 15%. The firm is
experiencing___________.
A. decreasing returns to scale
B. increasing returns to scale
C. constant retu rns to scale
D. diminishing returns
Section B: Structure Questions
1. The following table 1 shows the amount of output produced by a firm using two type of inputs,
labour and capital.
Inputs
Outputs
Labour Capital
150 22 40
330 44 80
660 88 160
1,320 176 320
2,376 352 640
a) Is the firm operating in the short run or long run? Why?
The long run, because both inputs are variable inputs.
b) Identify the range of output, when the firm experiences:
i. Increasing return to scale
150 – 330 output
ii. Constant return to scale
330 – 1,320 output
iii. Decreasing return to scale
1,320 – 2,376 output
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Tutorial Chapter 5/Part 1/Microeconomics / ECON1003
2. The following table 2 shows the quantity of labour used at various levels of production in a firm.
Average Marginal
Labour quantity Total Production
Production (AP) Production (MP)
(TL) (people) (TP) (units)
(units) (units)
1 5 5 5
2 20 10 15
3 32 10.67 12
4 42 10.50 10
5 50 10 8
6 55 9.17 5
7 58 8.29 3
8 58 7.25 0
9 56 6.22 -2
a) Calculate the (AP) and (MP) at each level of labour.
(at labour 2)
AP = TP ÷ TL
= 20 ÷ 2
= 10 units
(at labour 2)
MP = ∆TP ÷ ∆TL
= 15 ÷ 1
= 15 units
b) Using graph paper, draw the (TP), (AP), and (MP) curves for each level of labour. Indicate the
stages of production.
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Tutorial Chapter 5/Part 1/Microeconomics / ECON1003
c) TP is maximized by how many labours?
8 labours
d) At which stage of production will a rational producer choose to produce? State the range of labours.
Stage II because the combination of inputs is fully utilized. At labour 4 – 8.
e) State three relationship between (AP) and (MP).
MP > AP when AP rises.
MP = AP when AP at its maximum.
MP < AP when AP falls.
3. The following table 3 shows the relationship between total production of Good Z and the number
of labour used at various levels of production in a firm.
Labour quantity (TL) (people) 0 1 2 3 4 5 6 7 8 9
Total product (TP) (units) 0 10 26 41 52 60 65 67 67 63
Average product (AP) (units) - 10 13 13.7 13 12 10.8 9.6 8.4 7
Marginal product (MP)(unit) - 10 16 15 11 8 5 2 0 -4
a) Calculate the TP and AP.
(at labour 2)
TP = MP labour 2 + MP labour 1
= 16 + 10
= 26 units
(at labour 2)
AP = TP ÷ TL
= 26 ÷ 2
= 13 units
b) Using graph paper, draw the (TP), (AP), and (MP) curves for each level of labour. Indicate the
stages of production.
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Tutorial Chapter 5/Part 1/Microeconomics / ECON1003
c) TP is maximized by how many labours?
8 labours
d) At which stage of production will a rational producer choose to produce? State the range of labours.
Stage II because the combination of inputs is fully utilized. At labour 5 – 8.
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Tutorial Chapter 5/Part 1/Microeconomics / ECON1003
Section C: Essay Questions
1. In the production theory, the production function can be divided into three stages. Explain.
8 marks
Stages Explanation Marks
Begins from the origin the AP curve reaches its maximum point.
1m
TP increases at an increasing rate.
1m
MP reaches its maximum and declines.
1m
Stage 1 AP increases and intersects MP when AP is at its maximum. 1m
Ends when AP = MP. 1m
Producer will continue to increase production as he can still increase TP. 1m
Starts after AP = MP.
1m
TP increases, but at a decreasing rate, until it reaches its maximum.
1m
MP declines until MP = 0
1m
AP starts to decline, but is still positive.
1m
Stage 2 Ends when TP is at its maximum and at the same time MP = 0.
1m
A rational producer will choose to stop production at this stage as he is able 1m
to maximize the output.
Most efficient stage. 1m
Starts when MP is negative.
1m
TP is declining.
1m
AP is declining.
Stage 3 1m
Overcrowding – addition of one more unit of labour to fixed input, TP will
decrease.
1m
17 m
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