Lesson 2

What primarily determines the total production of goods and services in an economy?

• a) Government spending and taxes

• b) Quantity of inputs and production technology

• c) Consumer preferences

• d) Interest rates

In the classical model, which two factors of production are considered most important?

• a) Land and entrepreneurship

• b) Capital and labor

• c) Technology and capital

• d) Labor and raw materials

What does the production function Y = F(K, L) represent?

• a) Output depends only on labor

• b) Output depends only on capital

• c) Output is a function of capital and labor inputs

• d) Output is fixed regardless of inputs

What is assumed about the factors of production in this module?

• a) They change frequently

• b) They are fully utilized and fixed in quantity

• c) They are unlimited

• d) They are not important for output

How is national income distributed to the factors of production?

•  According to factor prices such as wages and rents

• Equally among all citizens

• Based on government policy

• Randomly

What determines the equilibrium factor price in factor markets?

• Government intervention

• The number of firms in the economy

• The total output produced

• The intersection of factor supply and factor demand

The marginal product of labor (MPL) is defined as:

• The extra output from one additional unit of labor

• The total output produced by labor

• The cost of hiring one more worker

• The wage rate paid to labor

What does the law of diminishing marginal product of labor imply?

• The MPL increases as more labor is hired

• The MPL remains constant regardless of labor input
  
  

• The MPL decreases as more labor is hired, holding capital fixed

• The MPL fluctuates randomly

When does a profit-maximizing firm decide to hire more labor?

• When the wage rate is higher than the extra revenue from labor

• When the extra revenue from labor equals the wage rate

• When the extra revenue from labor is greater than the wage rate

• When labor supply increases

According to the classical theory, what happens to economic profits if the production function has constant returns to scale?

• Economic profits are maximized

• Economic profits are zero

• Economic profits are negative

• Economic profits fluctuate