1. Which of the production functions below indicates decreasing returns to scale?

a) P(L,K)=min{L,K}

b) P(L,K)= L+K-500

c) P(L, K)=LK

d) None of the above

2. A farmer is producing wheat. The output will be 250 bushels if one worker is hired, 500 if two, 700 if three, 850 if four, and 900 if five. The farmer can sell one bushel for $8. What is the marginal product of the fourth worker?

a) $6,800

b) $7,200

c) $1,200

d) $1,700

e) $8

3. A baker produces bread each day at work. The average number of baked bread over the first three hours is 50 per hour, and the marginal product of the fourth and fifth hours of work is 40 and 20 breads, respectively. How many breads did our baker produce in one day of work? (4 Points)

a) 110

b) 210

c) 90

d) 150

4. What does the fact that limited use of caffeine can improve mental alertness and help performance, while excessive use of caffeine can cause anxiety and trembling show?

1. That coffee is an inferior good
2. The law of diminishing marginal returns, as the effect of consuming more caffeine is decreasing.
3. The law of decreasing returns of scale in the coffee production
4. That consumers have a disutility for caffeine.

5. What defines a production function?

1. A production function identifies the profit-maximizing level of output.
2. A production function identifies the current level of output.
3. A production function shows the minimum level of output that can be produced with given inputs.
4. A production function shows the maximum level of output that can be produced with given inputs.