1. The principle of diminishing returns to production is seen graphically as a

(A) total product curve that increases at a decreasing rate as more of a variable input in employed (B) an average fixed cost curve that declines as more output is produced (C) a total cost curve that increases at a decreasing rate as more output is produced (D) a total fixed cost curve that is unchanged as more output is produced (E) total product curve that increases at a constant rate as more of a variable input is employed

2. Aleks owns a small factory, and he has determined that when he employs eight workers the total production is 80 units of output, and when he employs nine workers, production is 81 units of output. Based on this information, we can tell that when nine workers are employed, the marginal product of the ninth worker is ___________ and the average product of labor is _________.

(A) 10 units; 9 units (B) 1 unit; 81 units (C) 1 unit; 9 units (D) 80 units; 9 unit (E) 1 unit; 8 units

3. Which of the following statements are correct about short-run production functions?

I. When the total product of labor is increasing, the marginal product of labor is negative II. When the marginal product of labor is greater than the average product of labor, average product of labor is rising. III. When the marginal product of labor is falling, the total product of labor is also falling.

(A) I only (B) II only (C) III only (D) II and III only (E) I, II, and III

4. In the short run, which of the following is an accurate description of how to calculate total cost?

(A) Total cost is the sum of total variable cost and marginal cost. (B) Total cost is the difference between total variable cost and total fixed cost. (C) Total cost is the sum of average variable cost and average fixed cost. (D) Total cost is the sum of average variable cost and marginal cost. (E) Total cost is the sum of total variable cost and total fixed cost.

5. Of all short-run cost curves, which one has a downward slope for all units of output?

(A) Marginal cost (B) Average fixed cost (C) Total variable cost (D) Average variable cost (E) Average total cost

6. A firm produces a commodity X and no matter how many X's are sold the market price is unaffected. The marginal revenue of the next X sold is equal to

(A) marginal profit (B) average total cost (C) price (D) average variable cost (E) marginal product

7. In the short run, the marginal product of labor is inversely related to

(A) economic profit (B) marginal utility (C) average fixed cost (D)average product of labor (E) marginal cost

8. Suppose that a firm experiences a technological improvement such that the total product of labor curve increases at every quantity of labor employed. How will this affect the marginal product of labor and marginal cost of production in the short run?

Marginal Product of labor Marginal cost

(A) Shifts downward shifts upward (B) No change No change (C) shifts upward shifts downward (D) Shifts upward No change (E) No change shifts upward

9. All else equal, in the short run as more labor is employed, average product of labor ___________, and average variable cost ____________.

(A) rises then falls; always falls (B) falls then rises; always rises (C) always falls; always falls (D) rises then falls; falls then rises (E) falls then rises; rises then falls

10. Refer to the following table

Price ($)	Quantity demanded
1	20
2	18
3	16
4	14
5	12
6	10
7	8

What is the marginal revenue associated with a price increase from $3 to $4?

(A) $8 (B) $1 (C) $4 = (56-48)/2 (D) $56 (E) $48

11. Refer to the following table.

Output	Total variable cost($)	Total cost($)
0	0	100
1	100	200
2	140	240
3	190	290
4	250	350
5	320	420
6	400	500
7	490	590
8	590	690

If the firm can sell all units of output at a constant price of $70, how many units will be sold to maximize profit?

(A) 0 (B) 5 (C) 7 (D) 6 (E) 2

12. Refer to the table below.

Output	Total variable cost($)	Total cost($)
0	0	100
1	100	200
2	140	240
3	190	290
4	250	350
5	320	420
6	400	500
7	490	590
8	590	690

Every time the firm sells a unit of output, the total revenue rises by $80. If the firm sets output to maximize profit, how much profit will the firm earn?

(A) -$20 (B) $480 (C) $400 (D) $80 (E) -$100

13. Refer to the following table.

Output	Total variable cost($)	Total cost($)
0	0	100
1	100	200
2	140	240
3	190	290
4	250	350
5	320	420
6	400	500
7	490	590
8	590	690

Suppose the firm has maximized profit at the output of 8 units, what is the marginal revenue earned from the eighth unit?

(A) $100 (B) $90 (C) $590 (D) $110 (E) $690

14. In the long run, all production costs are

(A) fixed (B) sunk (C) variable (D) marginal (E) constant

15. One of the characteristics of perfect competition is

(A) asymmetric information (B) barriers to entry and exit (C) product differentiation (D) many buyers and sellers (E) high levels of advertising

16. Which of the followingdescribes the behavior of firms in the model of perfect competition?

A) Firms engage in heavy spending on advertising. B) Firms have no ability to affect the price of the product. C) Firms can earn positive economic profit in the long run. D) firms can create barriers to entry for new firms. E) Firms differentiate their product from other firms.

17. If the market for commodity X is perfectly competitive, the market demand curve for X is _____________ , while the demand curve for any one firm's output of X is ____________.

A) downward sloping; horizontal B) downward sloping; downward sloping C) horizontal; vertical D) horizontal; horizontal E) horizontal; downward sloping

18. In perfect competition, which of the following string of equalities is always true in the short run?

A) P= MR = ATC (B) P = MR = MC (C) P = ATC (D) P = MC = ATC (E) P = MR = MC = AVC

19. The short-run supply curve for a perfectly competitive firm is the

A) average total cost curve B) marginal revenue curve C) marginal cost curve above average variable cost D) average variable cost curve to the right of the marginal cost curve E) market price curve

20. Suppose that, in the short run, the price of a key fixed input increases. How will this affect the marginal cost, average total cost, average fixed cost, and average variable cost curves? C

Marginal cost Average Total cost Average fixed cost Average variable cost

A) Shifts upward Shifts upward Shifts upward No change B) No change Shifts downward Shifts upward No change C) No change Shifts upward Shifts upward No change D) No change No change Shifts upward No change E) No change No change No change No change

21. If a perfectly competitive firm observes the market price rising, the firm will _______ output along the ______ curve.

A) decrease; average variable cost B) increase; average variable cost C) decrease; marginal cost D) increase; average total cost E) increase; marginal cost

22. Refer to the following figure.