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Tourism Management
Quiz – ECON 101
Multiple Choice Questions:
1) Use the following table to answer the next five questions
# of Labor (Workers)
0
1
2
3
4
5
6
Total Product
0
15
32
48
60
...
...
Marginal Product
...
...
...
...
10
...
Average Product
...
...
...
...
...
13
1) Total product, if 6 workers are employed, is
a) 70 units of output
b) 73 units of output
c) 78 units of output
d) 86 units of output
2) Average product, if 5 workers are employed, is
a) 10 units of output
b) 12 units of output
c) 14 units of output
d) 15 units of output
3) Diminishing returns set in with the ... worker.
a) first
b) second
c) third
d) fourth
4) Average product begins to decrease with the ... worker.
a) first
b) second
c) third
d) fourth
5) Marginal product of the sixth worker is
a) 8 units of output
b) 13 units of output
c) 14 units of output
d) 78 units of output
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6) When marginal product is decreasing, average product is
a) decreasing
b) increasing
c) negative
d) none of the above
7) Law of diminishing returns
a) applies in the short run but not in the long run
b) requires that all factors of production must diminish in equal proportions
c) requires that all factors of production must diminish in unequal proportions
d) states that marginal product must always be less than average product
8) The short run is a period of time during which
a) all resources are fixed
b) all resources are variable
c) the scale of production is fixed
d) the scale of production is variable
9) Of the following, ... is the most likely to be a variable cost.
a) the wage of a security guard
b) the firm’s rent on its factory building
c) the firm’s electricity bill
d) the firm’s interest payment on a bank loan
10) As output level increases, the difference between ATC and AVC
a) increases because, TC includes fixed costs
b) decreases, because additional units of output spread fixed cost over a larger number of
units and reduce its importance
c) remains constant, because TFC is a constant
d) decreases and then increases, because they are U-shaped curves
11) Marginal costs can be defined as,
a) the value of TC divided by the quantity level
b) the change in total variable cost divided by the change in quantity level
c) the change in ATC divided by the change in quantity level
d) the change in AVC divided by the change in quantity level
12) The firm is at the output level where MC intersects AVC. We can infer that,
a) AVC is rising
b) AVC is falling
c) ATC is falling
d) ATC is rising
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13) In the short run, profits will be maximized at the output level where
a) price is equal to MR
b) marginal cost is equal to AVC
c) average total cost is minimized
d) marginal cost is equal to price
14) At the current production level, ATC is increasing. Of the following situations, we
should consider increasing production if
a) price is less than ATC
b) price is greater than ATC
c) price exceeds AVC, but less than ATC
d) price is equal to ATC
15) In the short run, profits will be maximized at the output level where
a) TR is maximized
b) TC is minimized
c) MC and MR are equalized
d) variable costs are minimized
16) HAL Corp., a perfectly competitive firm, is currently producing 20 units. The price is
$10/unit, TFC is $10, and AVC is $3. The firm is,
a) making a total profit of $130
b) is maximizing profit
c) is making a loss of $3 per unit
d) is making a profit of $7 per unit
Use the following information to answer the next three questions. A perfectly
competitive firm, operating in an industry that is experiencing external diseconomies of
scale, Ali’s T-shirts, is in long run equilibrium producing 500 T-shirts per week.
Suddenly, the price of all variable factors of production falls. Also, market demand for Tshirts increases.
17) In the short run, Ali’s T-shirts will
a) produce more T-shirts, but the effect on profits is uncertain
b) produce fewer T-shirts, and possibly close down
c) earn positive profits, but the effect on output is uncertain
d) produce more T-shirts and earn positive profits
18) In the long run equilibrium, Ali’s T-shirts will
a) produce more than 500 units per week, but the effect on profits is uncertain
b) produce fewer than 500 units per week, and earn normal profits
c) earn normal profits, but the effect on output is uncertain
d) earn positive profits, but the effect on output is uncertain
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19) The short run industry supply (S) curve will shift to the ... and the long run industry S
curve is ... .
a) right – upward sloping
b) right – downward sloping
c) left – upward sloping
d) left – downward sloping
20) When P < LRAC, we would expect ... and ... firms in this industry
a) investment; more
b) investment; fewer
c) disinvestment; more
d) disinvestment; fewer
Essay Questions:
1)
Output
Mix 1
Mix 2
Mix 3
K
L
K
L
K
L
11
7
2
4
4
2
7
12
8
4
6
6
3
8
13
9
6
8
8
4
13
14
12
8
10
10
5
19
15
15
10
12
12
6
25
16
21
12
14
14
7
31
a) Which input mix will be chosen if the firm wishes to produce 11 units of output, P K
and PL are $4 and $2 per unit respectively.
b) Will this mix still be cheapest if the input prices change to $3 both for capital and
labor.
c) Will this mix still be cheapest if the input prices change to $2 for capital and $4 for
labor.
2) Suppose you are a consultant for ABC Inc., a perfectly competitive firm. Your
research reveals two facts; (1) that the cost of producing the final unit of output is just
equal to the market price, and (2) that the firm’s total revenue is greater than its total
variable costs, and less than its total fixed costs. What would you recommend ABC do in
the short run and in the long run?
Now, XYZ, a firm in the same industry, requests your advice. Your research reveals that;
(1) the cost of producing the final unit of output is just equal to the market price, and (2)
the firm’s total revenue is greater than its TFC and less than its TVC. What would you
recommend XYZ do in the short run and in the long run?
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