1. Consider the marginal physical product of labour function. In the area of dim

ID: 1108068 • Letter: 1

Question

1. Consider the marginal physical product of labour function. In the area of diminishing returns in production:

a) Total output declines with each additional unit of labour input.

b) The marginal product of labour increases at a decreasing rate.

c) The marginal product of labour decreases.

d) The marginal product of labour first increases, then reaches a maximum level, and then decreases.

2. In the long run, which of the following statements is false?

a) MPPN / MPPK = w / r.

b) The marginal rate of technical substitution is equal to the ratio of factor prices.

c) MPL = MPK.

d) Profits are maximized.

3. The determinants of the wage elasticity of demand for labour include all of the following except:

a) the availability of substitute inputs.

b) the firm's profitability

c) the elasticity of demand for output.

d) the ratio of labour cost to total cost.

4. Consider a firm that seeks to minimize the cost of producing a given level of output. How will it respond to an increase in the wage rate?

a) It will increase production

b) It will hire more workers

c) It will substitute capital for labour

d) It will not react at all

5. Estimates of the wage elasticity of labour demand have pegged it at approximately:

a) - 1.0

b) - 1.5

c) - 0.1 to - 0.6

d) 0

6. Which of the following statements regarding a firm's production function is true?

a) The marginal product of labour curve intersects the average product of labour curve at its lowest point.

b) The average product of labour curve intersects the marginal product of labour curve at its highest point.

c) The marginal product of labour curve must not intersect the average product of labour curve.

d) The marginal product of labour curve intersects the average product of labour curve at its highest point.

1) C. In diminishing return, marginal product decreases

2)C. MPL is not equal to MPK. However MPL/MPK=W/R

3)C. Elasticity of demand for output is not a determinant of input elasticity

4)C. Increasing wage will decrease labor and increase capital

5)C

6)D. MPL intersect APL where APL is highest

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