Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
PROBLEM SET 6
Multiple Choice Questions
1) The information a firm needs to know with the objective of maximizing profit
includes:
a. The market price of the output
b. The techniques of production that are available
c. The prices of inputs
d. All of the above
Figure 1
2) Refer to Figure 1. Panel _____ represents the demand curve facing a perfectly
competitive producer of wheat.
a. A
b. B
c. C
d. D
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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
Figure 2
3) Refer to Figure 2. This corn producer produces 100 bushels of corn and sells each
bushel at $5. The cost of producing each unit bushel is $2. This corn producer's total
revenue and profit are ----- and ----- respectively.
a. 500; 300
b. 500; 200
c. 200; 0
d. 200; 100
4) Economic costs
a. include both a normal rate of return on investment and the opportunity cost
of each factor of production.
b. are equal to the direct costs of hiring all factors of production.
c. are the opportunity cost of each factor of production minus any interest charges
paid on borrowed funds.
d. are equal to total revenue minus accounting profit.
5) Assume that you are the owner and only employee of a company that sets odds for
sporting events. Last year you earned a total revenue of $100,000. Your costs for rent
and supplies were $50,000. To start this business you invested an amount of your own
capital that could pay you a return of $20,000 a year.
During the year your accounting profit and economic profit were ---- and ---respectively.
a. $30.000; $50.000
b. $50.000; $20.000
c. $50.000; $30.000
d. $100.000 ; $50.000
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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
Figure 3
6) Refer to Figure 3. The marginal product of the fourth worker is
a. 10
b. 8
c. 12.5
d. 50
7) Refer to Figure 3. The average product of the third worker is
a. 10
b. 14
c. 30
d. 42
Figure 4
8) Refer to Figure 4. Diminishing marginal returns set in after the __________ worker is
hired.
a. First
b. Fifth
c. Eighth
9) If marginal product is greater than average product, then
a. average product must be decreasing.
b. marginal product must be decreasing.
c. marginal product must be increasing.
d. marginal product could either be increasing or decreasing.
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d. Sixteenth
Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
Table 1
Inputs Required to Produce a Product Using Alternative Technologies
10) Refer to Table 1. Which technology is the most capital intensive?
a. A
b. B
c. C
d. D
11) Refer to Table 1. If the hourly wage rate is $10 and the hourly price of capital is $50,
which production technology should be selected?
a. A
b. B
c. C
d. D
12) Assume that the price of labor and capital have remained the same, but that the
average educational level of workers has increased and therefore the productivity of
labor has increased. This would lead a firm to
a. use a more capital-intensive production technology.
b. use a more labor-intensive technology.
c. not change its production technology, but to produce fewer units of output.
d. use only labor to produce the product.
13) If diminishing marginal returns have already set in for The Picture Perfect Framing
Store and the marginal product of the fifth picture framer is 20, then the marginal
product of the sixth picture framer must be
a. negative.
b. zero.
c. less than 20.
d. greater than 20.
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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
Essay Questions
1) What is the key differentiation between the short run and the long run for the profitmaximizing firm?
In the short run, at least one of the firms’ inputs remains fixed. The firm must decide
how much output to produce with the plant size in existence now. In the long run, all
resources are variable, so the firm can expand its production capacity. The firm must
decide what is the optimal plant size in which to produce the output demanded at a
minimum cost.
2) The number of repairs produced by a computer retail shop depends on the number of
workers as follows:
Number of Workers
Number of Repair
Marginal Product
Average Product
0
0
-
1
8
8
8
2
20
12
10
3
35
15
11.67
4
45
10
11.25
5
52
7
10.40
6
57
5
9.50
7
60
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8.57
a. For what range of labor input are there increasing returns to labor? 1-3 worker
b. For what range of labor input is marginal product greater than average product? What
is happening to average product as employment increases over this range? 1-3 worker
c. For what range of labor input is marginal product smaller than average product? What
is happening to average product as employment increases over this range? 4-7 worker
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