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Based on the concept of diminishing returns, as the quantity of output increases, the short-run marginal costs of production eventually:
A)
rise at an increasing rate.
B)
fall at a decreasing rate.
C)
rise at a decreasing rate.



The law of diminishing returns states that as more variable resources are a production process combined with a fixed input, output will eventually increase at a decreasing rate. In the short run, as the quantity produced rises, costs rise at an increasing rate.

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The law of diminishing returns states that for a given production process, as more and more of a resource (such as labor) are added, holding the quantities of other resources fixed:
A)
cost declines at a decreasing rate.
B)
output increases at a decreasing rate.
C)
cost declines at an increasing rate.



The law of diminishing returns states that for a given production process, as more and more resources (such as labor) are added holding the quantities of other resources fixed, output increases at a decreasing rate. This occurs because, at some point, adding more workers results in inefficiencies.

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According to the law of diminishing returns, doubling the number of salespeople for a firm will most likely result in:
A)
decreasing the total sales of the firm as a result of competition amongst salespeople.
B)
doubling the total sales of the firm.
C)
increasing the total sales of the firm and reducing the average sales per salesperson.



The law of diminishing returns states that as more of a resource is added to a production process, holding other resource use constant, increases in output will eventually decrease. Therefore, as more salespeople are added they will generate more sales at a decreasing rate. Total sales will increase and the average sales per salesperson will decrease.

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At a fixed level of capital, output increases as the quantity of labor increases, but at a decreasing rate. This phenomenon is an example of:
A)
law of diminishing costs to labor.
B)
law of diminishing returns to labor.
C)
law of diminishing returns to capital.



The law of diminishing returns states that at some point, as more and more of a resource (e.g., labor) is devoted to a production process, holding the quantity of other inputs constant, the output increases, but at a decreasing rate.

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Which of the following statements regarding diminishing marginal returns is most accurate?
A)
As the quantity produced rises, costs begin to rise at a decreasing rate.
B)
The total cost curve arches downward.
C)
As the quantity produced rises, costs begin to rise at an increasing rate.



At production levels that are consistent with decreasing marginal returns, costs will increase at an increasing rate as production rises.

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Holding the quantity of labor constant, output increases as the quantity of capital increases, but at a decreasing rate. This phenomenon is most accurately described as:
A)
diminishing marginal product of capital.
B)
diminishing marginal costs of capital.
C)
diminishing average returns to capital.



The marginal product of capital is the change in output divided by a unit change in capital, holding labor constant. Diminishing marginal product of capital means that at a constant level of labor, output increases as capital is added, but at a decreasing rate.

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Are the following two statements about the marginal revenue product (MRP) of a factor of production accurate?
Statement 1: In a price taker market, the MRP of an input is the marginal product of the input multiplied by the price of the output it generates.
Statement 2: If we compare any two productive inputs, the one with the higher MRP will earn greater economic rent.
Statement 1Statement 2
A)
IncorrectCorrect
B)
CorrectIncorrect
C)
CorrectCorrect



Statement 1 is correct. MRP is the addition to total revenue from selling the output generated by one more unit of input. In a price taker market (i.e., perfect competition), marginal revenue is equal to price. Therefore, the MRP is the marginal product of the input times the output price. Statement 2 is incorrect. The extent to which a factor of production earns economic rent depends on the shape of its supply curve. An input with a high MRP might earn very little economic rent if the supply of the input is highly elastic. An input with a relatively lower MRP can earn significant economic rent if its supply is highly inelastic.

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A shop foreman determines that an employee would produce two more units of output if he worked one additional hour. The product currently sells for $15.00 per unit and the firm is a price taker. Which of the following choices most accurately describes the relationship between the marginal revenue (MR) and marginal revenue product (MRP) from the additional hour of labor input?
A)
MR = $15 and MRP < MR.
B)
MRP > MR.
C)
MRP = MR.



By definition, the MR is the addition to total revenue from selling one more unit of output. The MRP is the revenue from selling the marginal product, which in this example is two units. Therefore the MRP must be greater than the MR.

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The increase in total revenue from selling the additional output of one more unit of an input is called the input’s:
A)
marginal revenue product.
B)
factor of production.
C)
marginal revenue.



The marginal revenue product of an input is the addition to total revenue gained by selling the additional output from employing one more unit of that input.

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Marginal revenue product is best defined as the:
A)
gain in total revenue from selling one more unit of output.
B)
additional output that results from employing one more unit of a productive input.
C)
addition to total revenue from selling the additional output from using one more unit of an input.



The marginal revenue product is the addition to total revenue from selling the additional output that one more unit of an input can produce. The additional output that results from employing one more unit of a productive input is the marginal product. The gain in total revenue from selling one more unit of output is the marginal revenue. A marginal revenue product exists for any level of output; it is not limited to the level at which marginal revenue equals marginal cost.

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