Practice Questions
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In the short run, as a firm increases the number of workers while keeping capital fixed, what is likely to happen to the average product of labor?
When a firm hires more workers but has the same amount of machines or tools, each worker may not be as productive. Other options are incorrect because...
In the context of short-run production decisions, how does the average product influence cost-benefit analysis when determining the optimal level of output?
When the average product is high, it means each unit of input is producing a lot. Other options are incorrect because Some might think average product...
In the context of short-run production decisions, which of the following best describes the relationship between fixed costs and cost-benefit analysis when deciding to continue production?
When deciding to keep making products, focus on the extra benefits and costs. Other options are incorrect because Some people think fixed costs don't ...
In the context of short-run production decisions, a firm should continue production as long as the additional revenue from selling one more unit exceeds the additional variable costs associated with that production. Which of the following statements best describes this scenario?
A firm should keep making products until the money it makes from selling one more unit equals the cost of making that unit. Other options are incorrec...
In the short run, if a firm increases its labor input, the marginal product of labor will initially rise due to specialization. However, after a certain point, the marginal product begins to decline. How does this phenomenon affect the firm's total costs?
When a firm hires more workers, they can produce more at first. Other options are incorrect because Some might think that more workers always mean bet...
In the short run, which of the following factors is considered variable in the production process?
Labor is variable because you can hire more workers or let some go quickly. Other options are incorrect because Many people think capital, like machin...
In the short-run production decisions, which of the following is considered a fixed factor of production?
Capital is a fixed factor because it includes things like machines and buildings. Other options are incorrect because Labor is not fixed because you c...
In the context of short-run production decisions, what does the marginal product of labor refer to?
The marginal product of labor is about how much extra stuff we can make when we add one more worker. Other options are incorrect because This answer c...
Arrange the following steps in the correct order that a firm should follow to determine whether to continue production in the short run when facing economic losses due to a decrease in consumer income.
First, a firm needs to look at its average variable cost. Other options are incorrect because This step comes after evaluating costs; Deciding to shut...
Which of the following conditions must be met for a firm in a perfectly competitive market to continue production in the short run, despite experiencing economic losses? Select all that apply.
A firm can only continue if it can cover its variable costs. Other options are incorrect because Some might think that as long as the price is above a...
In a perfectly competitive market, a firm will continue to produce in the short run as long as the market price is greater than or equal to the __________.
A firm will keep making products if the price covers its variable costs. Other options are incorrect because Some might think fixed costs matter here;...
In a scenario where a firm's market price falls below its average variable cost, what should the firm ideally decide to do in the short run?
When the price is lower than the average variable cost, the firm loses more money by producing. Other options are incorrect because Some might think c...
If a firm in a perfectly competitive market is experiencing losses but decides to continue production in the short run, what underlying condition must be true for this decision to be rational?
The firm will keep producing if the price is higher than its variable costs. Other options are incorrect because Some might think a firm needs to cove...
In a perfectly competitive market, the decision of a firm to continue production despite losses is to the average variable cost as the decision of a person to keep using an umbrella is to what?
Just like a person uses an umbrella when it might rain, a firm continues to produce if it can cover its variable costs. Other options are incorrect be...
A firm in a perfectly competitive market is facing a decrease in consumer income, leading to a drop in market prices. Which scenario best describes the firm's decision-making process regarding short-run production?
The firm will keep producing if the price is higher than its average variable costs. Other options are incorrect because Some might think stopping pro...
In a perfectly competitive market, under what condition should a firm continue to produce in the short run despite incurring losses?
A firm should keep producing if it can cover its variable costs. Other options are incorrect because Some might think that making more money than spen...
A local bakery is facing decreased consumer income, leading to a significant drop in sales. The owner evaluates whether to continue production of pastries that are currently sold at $2 each. The average variable cost of producing each pastry is $1.50. Given this situation, what should the bakery owner consider in deciding whether to continue production in the short run?
The owner should keep making pastries if the selling price is higher than the cost to make each one. Other options are incorrect because Stopping prod...
Master Short-Run Production Decisions
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