WorksheetsCMAF- ECO-1.4
Total questions: 100
Worksheet time: 3hrs 30mins
Production in economics is best defined as:
any activity to satisfy wants
creation of goods and services for sale in the market
making goods for personal use only
exchange of goods for goods
Which of the following is not a factor of production as per the notes?
Land
Labour
Capital
Price
Which feature of land means it cannot be physically moved?
Limited supply
Immobility
Diminishing returns
Fertility differences
The law of variable proportions applies to:
long run only
short run only
both short and long run
neither run
Who is associated with the law of variable proportions in the notes?
Adam Smith
Alfred Marshall
Lionel Robbins
Samuelson
Total Product (TP) is:
marginal output per unit of variable input
average output per unit of variable input
total output produced in a period
difference between total revenue and cost
Average Product (AP) =:
TP × Q
TP / Q
MP – TP
MP / TP
Marginal Product (MP) is:
change in TP due to one extra unit of variable input
TP divided by number of units of input
total revenue per extra unit produced
average of TP and AP
In stage I of the law of variable proportions:
MP < AP and TP decreases
MP rises and AP rises
TP is maximum and MP is zero
MP is negative
The second stage (stage II) ends when:
TP is minimum
MP = AP
MP = 0 and TP is maximum
AP = 0
A rational producer operates in which stage according to the notes?
Stage I
Stage II
Stage III
Stage IV
When MP > AP, AP will:
fall
rise
stay constant
be negative
If MP becomes zero, TP is:
maximum
minimum
equal to zero
decreasing at increasing rate
MP cutting AP occurs at:
AP maximum
AP minimum
TP maximum
TP minimum
Which of the following is an assumption of the law of variable proportions?
Technology changes continuously
Units of variable factor are heterogeneous
There is one variable factor and others fixed
Factor prices change during the observation
An example of an indivisible factor contributing to increasing returns is:
small hand tool
one extra worker only
large specialised machine
raw materials consumed per unit
Returns to scale examines production when:
only one variable input changes
fixed factors vary but variables constant
all inputs change in the same proportion
no inputs change
If doubling all inputs more than doubles output, this is called:
constant returns to scale
diminishing returns to scale
increasing returns to scale
decreasing marginal returns
Which of the following is a cause of increasing returns to scale listed in the notes?
Management problems
Indivisible factors
Rising input prices
Lack of coordination
Diminishing returns to scale are caused by:
specialization
indivisible factors
economies of scale
managerial diseconomies
Which statement distinguishes returns to a variable factor from returns to scale?
Returns to variable factor operate in the long run
Returns to scale involve changing one factor only
Returns to variable factor keep fixed factors constant
Returns to scale mean factor proportions change
Production function may be written as -
Relationship between Input and Output
Relationship between output and price
aggregate demand
available land
Economies of scale can be witnessed in which of the following conditions?
output falls for same inputs
technology has improved — more output for same inputs
factor prices rose
only labour productivity falls
In short-run production function, which factors are variable?
None
All factors
Only variable factors (like labour)
Only land
Which of the following graphs would show TP rising at a diminishing rate?
Linear upward slope
Concave to the origin (increasing slope)
Increasing then flattening
Downward slope
The law of diminishing marginal utility explains:
producer’s behaviour only
why demand curve slopes upwards
consumer behaviour and demand slope downwards
supply behaviour in the short run
If inputs are increased proportionately and output increases in the same proportion, it is:
increasing returns to scale
constant returns to scale
diminishing returns to scale
negative returns
Which of the following is not a reason for increasing returns to scale in the notes?
Specialization
Volume discounts
Dimensional economics
Management problems
The midpoint where AP is maximum corresponds to:
MP = 0
MP = AP
AP = 0
TP = 0
When MP becomes negative, TP:
increases faster
remains unchanged
decreases
equals AP
The term “indivisible factors” refers to:
factors that can be split into fractional units easily
factors that cannot be effectively divided for small scale production (large machines)
land only
raw materials
Which of the following best describes “scale of production”?
number of buyers in the market
proportional change in all inputs to vary output size
change in taste and preferences
change in output price due to tax
The production function is primarily a:
monetary relationship between cost and revenue
technical relation between physical inputs and outputs
demand function for labour
pricing tool for monopolists
If AP is falling but MP is still positive, producer is in:
Stage I
Stage II
Stage III
No valid stage
Which stage is associated with increasing MP and AP?
Stage I (initial)
Stage II (middle)
Stage III (final)
Stage IV
The Law of Variable Proportions was originally illustrated using:
factory production with machines
cultivation of land with labour
banking services
international trade
According to the notes, a firm will avoid operating in:
Stage I and Stage III
Stage II only
Stage I only
Stage III only
Which of the following is a correct relationship as per the notes?
TP = ΣMP
AP = ΣMP
MP = AP × TP
MP = TP / AP
When labour is added to a fixed amount of land and output first increases at an increasing rate, this is called:
negative returns
increasing returns (to a variable factor)
decreasing returns to scale
constant returns
Which of the following would not shift the short-run production function?
change in technology
change in fixed factor (e.g., new machine in SR)
seasonal changes affecting productivity
change in tastes of consumers
Returns to scale are tested by changing inputs by:
one unit only
unequal proportions
same proportion for all inputs
only changing fixed inputs
If tripling inputs leads to less than triple output, this is:
constant returns to scale
increasing returns to scale
diminishing returns to scale
impossible
The notes list managerial problems as a cause of:
increasing returns to scale
diminishing returns to scale (diseconomies)
constant returns only
law of demand
Which curve is tangent to various short-run AC curves to form the long-run average cost?
AVC
LAC (planning curve)
SAC
None
The production function Q = f(L, K) indicates output depends on:
labour only
capital only
both labour and capital inputs
price only
Which of the following is a consequence of indivisibility of some factors?
immediate constant returns at very small scale
inability to get economies at small scale — contributes to increasing returns when scale expands
always leads to diminishing returns
raises demand elasticity
The second stage of the law of variable proportions is characterized by:
MP > 0 and AP falling but positive until MP = 0 at TP maximum
MP negative and AP negative
MP rising and AP rising continuously
TP decreasing
The term marginal in marginal product refers to:
average across all units
additional resulting from one more unit of variable input
total divided by cost
only applied to land
Which of the following is true at the point where AP is maximum?
MP = AP
MP < AP
MP negative
TP = 0
Which of these is not an assumption underlying the law of variable proportions?
Homogeneous units of variable factor
No change in technology
Variable factor prices constantly changing
Other factors held constant
Diminishing marginal returns can occur because:
all units of variable factor are homogeneous
perfect substitution among factors exists
factor combinations become wrong with too much of variable factor
technology keeps improving
The transition from increasing to constant returns to scale typically occurs because:
economies of scale vanish and indivisible factors have been fully utilised
law of demand reversed
input prices fall to zero
consumers change preferences
The production function is used by managers primarily to:
set final consumer prices only
determine relationship between inputs and feasible outputs for planning
calculate taxes only
determine interest rates
Which of the following is an example of means of production from the notes?
Consumer durable goods
Capital (machinery, factories)
Finished consumer products
Transfer payments
The marginal returns curve plotted against scale typically shows:
steady increasing slope forever
rise then plateau then fall (increasing →diminishing)
always negative slope
horizontal line
Which of the following best describes scale in returns to scale?
number of workers only
change in factor proportions such that all inputs are scaled together
only capital scaling
number of firms
When marginal product is rising, marginal returns are:
falling
rising
zero
negative
The law of variable proportions was developed by:
Ricardo
Alfred Marshall
P.A. Samuelson
Bohm-Bawerk
Suppose AP is 10 and the MP of the next worker is 12. After hiring that worker, AP will:
fall below 10
remain 10
rise above 10
become negative
Which of the following is an effect of indivisible factors on returns?
causes immediate negative returns at small scale
prevents specialization benefits
enables increasing returns when scale increases from very small to medium
reduces capital’s role
In long run returns to scale, factor proportions:
change (only one factor changes)
remain constant (all changed proportionately)
get fixed permanently
always produce diminishing returns
If a firm faces managerial diseconomies when it grows large, the likely effect is:
increasing returns to scale
constant returns to scale
diminishing returns to scale (diseconomies)
no effect on returns
Which is not a characteristic of land listed in the notes?
Gift of nature
Immobile factor
Infinite in supply
Differ in fertility
The law that states output can be changed by changing some variable factors while others remain fixed refers to:
Law of demand
Law of variable proportions
Law of supply
Law of diminishing marginal utility
The point where MP = AP signifies:
AP maximum
AP minimum
TP minimum
MP negative
If the marginal product is rising but average product is falling, what must be true?
impossible — if MP is rising, AP must rise
MP cannot rise when AP falls
AP is independent of MP
both are falling
Which of the following is TRUE about short run and long run suppose production?
Short run: all factors variable; Long run: some fixed
Short run: at least one factor fixed; Long run: all factors variable
Short run: technology always changes; Long run: technology fixed
Short run: no variable factors; Long run: no fixed factors
Specialization and division of labour are reasons for:
diminishing returns to scale
increasing returns to scale
constant returns
negative returns
If doubling inputs results in exactly double output, the long-run average cost curve:
slopes downward
slopes upward
is horizontal/constant at that region (constant returns)
becomes undefined
The term scale of production in examples is illustrated using:
outputs only
inputs increased in proportion like 1+2, 2+4 etc in notes table
prices and taxes
market demand only
The law of variable proportions is also called:
law of diminishing marginal returns
law of increasing returns only
law of supply
law of demand
Which of the following would shift the production function upward?
increase in taxes
technology improvement (increase in A)
reduction in labour supply only
increase in raw material prices
If TP is at a maximum, then MP is:
positive and rising
zero
negative
equal to AP
The notes say producers prefer operating in the second stage because:
MP negative but AP positive
TP decreasing
MP positive and AP positive — efficient region for profit maximization
AP is zero
Which of the following is a limitation of the law of variable proportions as per the notes?
It’s only valid in the long run
It assumes variable factor units are heterogeneous
It assumes no change in technology and applies to short-run only
It applies to services only
When factor proportions change (e.g., labour increases on fixed land), this is an example of:
returns to scale
returns to a variable factor
constant returns
long run adjustment
The law of returns to scale is about:
changing only labour and observing output
changing all inputs proportionately and observing output change
fixed prices of inputs only
demand and supply equilibrium
Which is the best managerial implication from the law of variable proportions?
Always hire infinitely many workers
Choose factor combinations that keep output in stage II for best efficiency
Operate only in stage I for better specialization
Ignore marginal product entirely
Which result follows from diminishing returns to scale?
doubling inputs always doubles output
doubling inputs increases output less than proportionately
doubling inputs produces more than double output
output becomes negative
In long run analysis, a firm can change:
only labour
only land
scale/plant size and all factors
only product price
Which of the following is an example of a fixed factor in short run?
Raw material consumption
Daily wage labour
Factory building
Electricity for production (varies with output)
The production function is useful for:
tax collection rules only
determining the technically efficient combinations of inputs to produce a given output
calculating elasticity of demand
setting government subsidies only
Which of the following causes diminishing returns in a variable factor?
perfect homogeneity of variable factor units
management problems when too many variable units are added to a fixed input
increased efficiency of all inputs infinitely
falling prices only
Which of the following best summarizes the difference between returns to a variable factor and returns to scale?
Variable factor returns vary only in long run; returns to scale in short run
Variable factor returns change one input keeping others fixed; returns to scale change all inputs proportionately
They are identical concepts
Returns to scale only apply to land
The notes emphasize that the law of variable proportions is useful for:
long term investment planning only
producer decision making regarding optimal output in short run
consumer demand forecasting only
monetary policy
Scale as used in production relates primarily to:
trade unions
the proportional size of all inputs used in production
price scaling of goods
taxation levels
When AP is rising, MP is:
below AP
equal to zero
above AP
negative
Which of these is an example of increasing returns to scale from the notes?
management bottlenecks as firm grows
volume discounts and specialization as firm expands
raw materials shortage when firm expands
increased input prices
The notes show that at very high levels of input, MP can become negative because:
extra inputs always produce extra output forever
too much of variable factor causes mis-combination and overcrowding leading to negative MP
technology automatically fails
TP cannot be negative
In which stage does the Marginal Product (MP) start to decline while Average Product (AP) is still increasing?
Stage I
No valid stage
Stage II
Stage III
What happens to Total Product (TP) when Marginal Product (MP) is negative?
TP decreases
TP remains constant
TP increases
TP becomes zero
Which of the following statements is true regarding the law of variable proportions?
It describes the relationship between variable and fixed inputs
It assumes all factors are variable
It applies only in the long run
It is applicable in both short run and long run
What happens to Marginal Product (MP) when it is less than Average Product (AP)?
MP will remain constant
MP will fall
MP will become negative
MP will rise
In which stage of production does the law of diminishing returns begin to take effect?
Stage I
Stage IV
Stage III
Stage II
Which of the following best describes the concept of returns to scale?
Change in output due to technological advancements
Change in output resulting from a proportional change in all inputs
Change in output due to market demand fluctuations
Change in output resulting from a change in one input only
What does the term 'diminishing returns' imply in production?
Output decreases with increased input
Output remains constant
Output increases at a decreasing rate
Output increases at an increasing rate
Which of the following best describes the relationship between marginal product and average product?
MP equals AP at maximum TP
MP is always greater than AP
MP and AP are unrelated
AP is always greater than MP
In the context of production, what does the term 'fixed factor' refer to?
A resource that is not used in production
A resource that is always variable
A resource that can be easily adjusted
A resource that cannot be changed in the short run
Supply of labour curve is :
Backward bending
Upward rising
Downward sloping
None
Capital formation involves ____ stages
2
3
4
None
