SAMPLE MCQ

1) With its current levels of input use, a firmʹs MRTS is 3 (when

capital is on the vertical axis and labor is on the horizontal axis).
This implies

A) the firm could produce 3 more units of output if it increased its

use of capital by one unit (holding labor constant).

B) the firm could produce 3 more units of output if it increased its

use of labor by one unit (holding capital constant).

C) if the firm reduced its capital stock by one unit, it would have to
hire 3 more workers to maintain its current level of output.

D) if it used one more unit of both capital and labor, the firm could
produce 3 more units of output.

E) the marginal product of labor is 3 times the marginal product of

capital.
2) A firm employs 100 workers at a wage rate of $10 per hour,
and 50 units of capital at a rate of
$21 per hour. The marginal product of labor is 3, and the marginal
product of capital is 5. The firm

A) is producing its current output level at the minimum cost.

B) could reduce the cost of producing its current output level by

employing more capital and less labor.

C) could reduce the cost of producing its current output level by

employing more labor and less capital.

D) could increase its output at no extra cost by employing more

capital and less labor.

E) Both B and D are true.

3) An effluent fee is imposed on a steel firm to reduce the amount
of waste materials that it dumps in a river. Use the following two
statements to answer this question:

I. The more easily factors of production can be substituted for one

another (for example, capital can be used to reduce waste water),
the more effective the fee will be in reducing effluent.

II. The greater the degree of substitution of capital for waste

water, the less the firm will have to pay in effluent fees.

A) Both I and II are true.

B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.
4) A firm wants to minimize the total cost of producing 100 tons of
dynamite. The firm uses two factors of production, chemicals and
labor. The combination of chemicals and labor that minimizes
production costs will be found where

A) the marginal products of chemicals and labor are equal

B) the ratio of the amount of chemicals used to the amount of
labor used equals the ratio of
the marginal product of chemicals to the marginal product of labor
C) the ratio of the amount of chemicals used to the amount of
labor used equals the ratio of
the price of chemicals to the wage rate
D) the production of an additional unit of dynamite costs the same
regardless of whether
chemicals or labor are used
E) none of the above

5) A plant uses machinery and waste water to produce steel. The

owner of the plant wants to maintain an output of 10,000 tons a
day, even though the government has just imposed a $100 per
gallon tax on using waste water. The reduction in the amount of
waste water that results from the imposition of this tax depends
on

A) the amount of waste water used before the tax was imposed.
B) the cost to the firm of using waste water before the tax was put
in place.
C) the rental rate of machinery.
D) the marginal product of waste water only.
E) the ratio of the marginal product of waste water to the marginal
product of machinery.