BAFF0023 - Exercise 3

Section A

1. Items that are purchased by individuals for their own enjoyment are called
A) consumption goods and services.
B) capital goods.
C) government goods and services.
D) exports of goods and services.
E) private goods.

2. What would be an example of a consumption good?

A) Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
B) The local driver's license office purchases a new digital camera and printer.
C) Rhianna gets a haircut.
D) Jake buys an iPhone.
E) Donald Trump purchases furniture for his office.

3. What would be an example of a consumption service?

A) Rhianna gets a haircut.
B) Jake buys an iPhone.
C) Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
D) The local driver's license office purchases a new digital camera and printer.
E) Donald Trump purchases furniture for his office.

4. What would be an example of capital good?

A) Jeanette buys a new dress.
B) The local driver's license office purchases a new digital camera and printer.
C) Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
D) Apple sells computers to Japan.
E) Rhianna gets a haircut.

5. The difference between consumption and capital goods is that

A) only big corporations can afford capital goods.
B) capital goods are used to produce additional goods while consumption goods are not.
C) capital goods are provided by the government.
D) consumption goods can be enjoyed by many people at the same time.
E) it is illegal to export capital goods.

6. Which of the following is NOT considered one of the factors of production?

A) land
B) labor
C) capital
D) technology
E) entrepreneurship.
7. Factors of production are the
A) goods that are bought by individuals and used to provide personal enjoyment.
B) goods that are bought by businesses to produce productive resources.
C) productive resources used to produce goods and services.
D) productive resources used by government to increase the productivity of consumption.
E) goods and services produced by the economy

8. Economists classify energy and water as part of which factor of production?

A) land
B) labor
C) capital
D) entrepreneurship
E) land if undeveloped and capital if developed

9. Which of the following is NOT considered capital?

A) an assembly line at a General Motors plant
B) a computer used by your instructor for presentations in class
C) stocks and bonds that are sold by Pepsico
D) the furniture in the President's office
E) a nail gun used for building houses

10. ________ paid for the use of land; ________ paid for the services of labor; and ________
paid for the use of capital.
A) Rent is; wages are; interest is
B) Rent is; interest is; wages are
C) Interest is; wages are; profit is
D) Mortgages are; interest is; wages are
E) Rent is; wages are; profit is

11. As a firm, Apple's goal is to

A) maximize profit.
B) develop new products.
C) maximize sales.
D) maximize revenue.
E) maximize production.

12. Lauren runs a chili restaurant in San Francisco. Her total revenue last year equaled
$111,000. The rent on her restaurant totaled $48,000. Her labor costs totaled $43,000. Her
materials, food and other variable costs totaled $19,000. To Lauren's accountant, Lauren
A) incurred a loss of $1,000.
B) earned a profit of $1,000.
C) incurred a loss of $111,000.
D) earned a profit of $111,000.
E) had a total cost equal to $91,000
13. When an economist uses the term "cost" referring to a firm, the economist refers to the
A) price of the good to the consumer.
B) explicit cost of producing a good or service but not the implicit cost of producing a good
or service.
C) implicit cost of producing a good or service but not the explicit cost of producing a good
or service.
D) opportunity cost of producing a good or service, which includes both implicit and explicit
cost.
E) cost that can be actually verified and measured.

14. Which of the following is an explicit cost of production?

A) wages paid to workers
B) the electric bill
C) purchases of raw material
D) Only answers A and B are explicit costs because the purchases of raw material is only
an opportunity cost.
E) Answers A, B, and C are all correct

15. Which of the following is an implicit cost?

i. wages paid to workers

ii. the normal profit
iii. the electric bill

A) i only
B) ii only
C) i and ii
D) ii and iii
E) Neither i, ii, nor iii

16. Suppose Billy owns a hair salon in Dallas. He has one large hair dryer for which he paid
$1,000. If he can sell the dryer one year later for $800, his total economic depreciation
equals
A) $1,000.
B) $200.
C) $800.
D) $1,800.
E) None of the above answers is correct
17. Austin owns the Fruit Bowl food truck. Which of the following would be short run decisions
for Austin?

i. how much fruit to buy

ii. how many workers to hire
iii. installing a new stove in his truck

A) i and ii
B) i, ii and iii
C) i only
D) ii only
E) ii and iii only

18. In the long run, the firm ________ change the number of workers it employs and ________
change the size of its plant.
A) can; can
B) can; cannot
C) cannot; can
D) cannot; cannot
E) In order to answer the question, more information is needed about how long the long
run is

19. The total product curve shows the relationship between total product and
A) cost.
B) the quantity of labor.
C) the average product.
D) the marginal product.
E) the marginal cost.

20. In the short run, firms increase output

A) only by increasing the size of their plant.
B) only by decreasing the size of their plant.
C) only by increasing the amount of labor used.
D) only by decreasing the amount of labor used.
E) either increasing the amount of labor used or increasing the size of their plant.
Question 21 and 23 based on Figure 1.

Figure 1

21. The figure shows the total product curve for the Fruit Bowl food truck. When labor
increases from 1 worker to 2 workers, total product increases to ________ meals and
marginal product equals ________ bowls.
A) 10; 5
B) 5; 10
C) 2; 2
D) 10; 2
E) 2; 5

22. The figure shows the total product curve for the Fruit Bowl food truck. If the food truck
increases production from 10 to 17 meals per hour, the marginal product is in the range
where it ________ and the marginal product is ________ the average product.
A) increases; greater than
B) increases; less than
C) decreases; greater than
D) increases; is equal to
E) does not change; is equal to

23. The figure shows the total product curve for the Fruit Bowl food truck. As the food truck
hires ________ workers, the marginal product(s) ________.
A) up to 3; are increasing
B) up to 3; are decreasing
C) between 3 and 5; are increasing
D) between 3 and 5; equal to the average product
E) over 4; are greater than the average product
24. When the slope of the total product curve is steep, the marginal product is
A) zero.
B) negative.
C) high.
D) low.
E) not defined.

25. If 9 workers can produce 1,550 units of output and 10 workers can produce 1,700 units of
output, then the marginal product of the 10th worker is
A) 1,700 units.
B) 1,550 units.
C) 150 units.
D) 170 units.
E) 155 units.

26. Jeremiah runs a bullfrog farm in Frogville, Oklahoma. Jeremiah notices that each additional
worker he employs adds more to the total output than does the previous worker. Jeremiah
must be
A) experiencing increasing marginal returns to labor.
B) producing at a point where the average product of labor decreases as more workers are
employed.
C) producing at a point below his total product curve.
D) mistaken because the law of decreasing returns points out that it cannot be the case
that the marginal product increases as more workers are employed.
E) producing at a point where the average product of labor exceeds the marginal product
of labor

27. The law of decreasing returns states that as a firm uses more of a
A) fixed input, with a given quantity of variable inputs, the marginal product of the fixed
input eventually decreases.
B) variable input, total output will increase indefinitely.
C) variable input, with a given quantity of fixed inputs, the marginal product of the variable
input eventually decreases.
D) variable input, output will begin to fall immediately.
E) fixed input and a variable input, the marginal product of the fixed input and the marginal
product of the variable input both decreases.

28. If 10 workers can produce 1,500 units of output and 11 workers can produce 1,600 units
of output, then the average product of 11 workers is
A) 1,600 units.
B) 1,500 units.
C) 145.5 units.
D) 100 units.
E) 136.4 units.
 Question 29 and 30 based on Table 1.

Table 1

29. Kenya owns a lawn mowing company. His total product schedule is in the above table. The
marginal product of the fourth worker is ________ lawns mowed per week.
A) 80
B) 25
C) 20
D) 5
E) 320

30. Kenya owns a lawn mowing company. When 4 workers are employed, the average product
is ________ lawns mowed per week.
A) 80
B) 25
C) 20
D) 5
E) 320
Section B

1. Table below shows the total product schedule for Jesse's Lawn Service.

a. In the figure, label the axes and then graph the total product curve

b. Find the average product for the different amounts of employment.

2. Identify the four factors of production and tell what type of income is earned by each factor.
3. Ajax Manufacturing has a fixed scale of plant with the levels of total product given in the
table for different levels of labor. Complete the table by calculating the average product
and marginal product.