1) A firm’s marginal cost of production will increase with a rise in the output
ID: 1222584 • Letter: 1
Question
1) A firm’s marginal cost of production will increase with a rise in the output level due to:
decreasing returns to scale.
constant returns to scale.
economies of scale.
constant returns to factors.
2) When a firm increased its labor input from 9 to 10 workers, the output increased from 20 units to 28 units and the revenue increased from $100 to $140. What is the marginal revenue product of the 10th worker?
$16
$30
$40
$25
3) The optimal level rule posits that:
if the price is more than the marginal cost, an increase the production quantity will lower the level of profit.
a firm should increase its production when the average total cost curve is rising.
if the marginal revenue is equal to the marginal cost, the firm is maximizing revenue.
if the marginal cost of the input exceeds the marginal revenue product, profit can be improved by decreasing the use of the input.
4) A typical derived demand curve for labor shows the relationship between:
the marginal revenue product and quantity of labor.
the wage rate and the quantity of labor demanded.
the average revenue earned by the firm and the rate of labor usage.
the marginal product of labor and the quantity of labor being used.
5) While hiring a new worker, a firm will pay a little higher wage than the prevailing market rate if:
the expected marginal revenue is positive.
the market demand for a new worker is low.
the labor market is less competitive.
the supply of workers is very high.
6) A firm increases the number of workers it employs from 8 to 10. The output increases from 20 units to 28 units. What is the change in average productivity of the workers?
2.0 units of output
0.3 unit of output
2.8 units of output
0.8 unit of output
Explanation / Answer
1) A firm’s marginal cost of production will increase with a rise in the output level due to:
economies of scale.
Until the firms reach the equilibrium point the marginal cost of production will increase, when the firm reach the economies to scale, the cost starts to decrease.
2) When a firm increased its labor input from 9 to 10 workers, the output increased from 20 units to 28 units and the revenue increased from $100 to $140. What is the marginal revenue product of the 10th worker?
Marginal Revenue increase = 140 -100 = 40
The marginal productivity of the 10 th worker = $40
3) The optimal level rule posits that:
a firm should increase its production when the average total cost curve is rising.
When the average total cost is increasing the firm has not reached the economies of scale and hence it should keep on increasing the productivity until the ATC starts to decline.
4) A typical derived demand curve for labor shows the relationship between:
the wage rate and the quantity of labor demanded.
As the demand curve is plot with two variables quantity of labor in the market against the wage rates.
5) While hiring a new worker, a firm will pay a little higher wage than the prevailing market rate if:
the expected marginal revenue is positive.
If the firm expects that it will be beneficial to hire the worker and he will lead to an increase in the revenue in the future, the firm may decide to pay him more.
6) A firm increases the number of workers it employs from 8 to 10. The output increases from 20 units to 28 units. What is the change in average productivity of the workers?
Average productivity of the workers earlier = 20/8 = 2.5
Average productivity of workers with 10 worker = 28/10 =2.8
Change in the productivity = 2.8- 2.5 = 0.3 units
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