Class 4

Which of the following is correct regarding the relationship between the marginal product of labor (MPL) and the average product of labor (APL)?

• If MPL is greater than APL, then APL will be increasing.

• APL is maximized when MPL>APL

• If MPL is greater than APL, then APL will be decreasing.

• APL is maximized when MPL<APL

If the marginal productivity of labor is constant for all levels of output, then the average productivity of labor

• is constant.

• equals the marginal productivity of labor. 

• Both A and B above.

• Neither A or B.

Dave's firm works in a perfectly competitive market. At the point where marginal cost equals marginal revenue, Dave's firm has an average total cost of $12 and an average variable cost of $8. At which price for the good would Dave's firm stay in the market in the short run but leave the market in the long run?

• $4

• $7

• $10

• $15

Answer explanation

Short Run shut down when P<AVC.

Long run exit when P<ATC

10. The marginal cost curve intersects the average variable cost curve at:

• No point, the curves does not intersect

• End point

• Maximum

• Lowest point

A profit-maximizing firm will hire:

• Labour until its wage rate equals its average revenue product

• Labour until its wage rate equals its marginal revenue product

• Labour until its wage rate equals the interest rate

• Ccapital until the interest rate equals the wage rate

Answer explanation

Profit is maximized when MC=MR. The cost of an additional unit of labour is MC

Decreasing returns to scale may occur as increasing the amount of inputs used?

• increases specialization
  

• increases efficiency
  

• may cause coordination difficulties
  

• always increases the amount of output produced

Economists typically assume that the owners of firms wish to

• produce efficiently.

• maximize profit.

• maximize sales revenues.

• all of the above.

A manufacturer of inflatable dart boards is producing 500 units per day. Its total variable cost is $9500 per day and its short-run average total cost is $33. Its average fixed cost is:

• $12

• $13

• $14

• $15

Answer explanation

ATC=$33

AVC=9500/500=19

AFC=ATC-AVC

33-19=14

Bill sells wild salmon, where he is required to buy a fishing license for $500 per year. If the cost of a license is raised to $600,

• his marginal cost is increased but his average total cost is unaffected.

• his marginal cost is unaffected but his average total cost is increased.

• 
  both his average total cost and his marginal cost are increased.

• 
  neither his average total cost and his marginal cost is affected.

Answer explanation

Total cost increases because fixed cost increase.

marginal cost does not, because marginal cost is the cost of producing one additional unit of output.

Kraft produces 100 pounds of meat each day and sells it at a price of $9. The average total cost of producing each pound of meat is $6.

• $100

• $300

• $3

• $200