- A firm employs variable amounts of labor to a
fixed amount of capital to produce output. If
the daily wage paid to labor increases, how does
this affect the firm’s costs?
TOTAL TOTAL
VARIABLE FIXED TOTAL
COST COST COST
(A) Decrease No change Decrease
(B) Decrease Decrease Decrease
(C) Increase Decrease No change
(D) Increase No change Increase
(E) Increase Increase Increase
- Diminishing marginal returns to short-run pro-
duction begin when
(A) the average product of labor begins to fall.
(B) the total product of labor begins to fall.
(C) marginal product of labor becomes negative.
(D) average variable cost begins to rise.
(E) marginal product of labor begins to fall.
- Which of the following is a characteristic of per-
fect competition?
(A) Firms produce a homogeneous product.
(B) Barriers to entry exist.
(C) Firms are price-setting profit maximizers.
(D) The government regulates the price so that
deadweight loss is eliminated.
(E) Long-run positive profits are available.
UNITS OF LABOR TOTAL PRODUCT (TPL)
00 cups
15
215
330
440
545
640
730
- The table above shows how hiring increasing
amounts of labor to a fixed amount of capital
affects the hourly output of Eli’s lemonade
stand. Based on this table of production data,
which of the following can be said?
(A) Diminishing marginal returns begins with
the first worker hired.
(B) Marginal cost begins to rise at the sixth
worker hired.
(C) Total product is maximized at the third
worker hired.
(D) Average product begins to decline with the
first worker hired.
(E) Diminishing marginal returns begins with
the fourth worker hired.
- The figure above shows the long-run average
cost curve of a competitive firm. Which of the
following choices best describes Region B in the
diagram?
(A) Economies of scale
(B) Diseconomies of scale
(C) Constant returns to scale
(D) Diminishing returns to scale
(E) Increasing returns to scale
Quantity
Dollars
LRAC
Region A Region B Region C
AP Microeconomics Practice Exam 2 ‹ 193
