2. Diminishing marginal returns for labor occur because (a) hiring more employees means that each has less capital with which to work. (b) it is more difficult to manage a firm as the size of the workforce and capital stock both grow. (c) hiring more employees means that they will subdivide tasks and therefore become more efficient. (d) None of the above.

3. If policy shifts individuals' budget constraints down by the same magnitude for all levels of leisure, we would expect (a) an income effect that moves the average individual toward more leisure. (b) an income effect that moves the average individual toward more work. (c) a substitution effect that moves the average individual toward more leisure. (d) a substitution effect that moves the average individual toward more work.