Topic 6 Odl
Topic 6 Odl
Topic 6 Odl
PART A
1. The relationship between a series of short run average cost curve (SRACs) and
the long run average curve (LRAC) is such that
A. all of the SRACs are tangent to the LRAC and lie above it.
B. some of the SRACs are tangent to the LRAC and lie below it.
C. some of the SRACs are tangent to the LRAC and lie above it.
D. the SRACs and the LRAC intersect at every point.
A. diseconomies of scale.
B. upward sloping short run supply curves.
C. marginal product is the slope of the total product curve.
D. when marginal product becomes negative, total product is necessarily
declining.
6. A production function
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A. returns to scale.
B. marginal output of a variable factor.
C. marginal output of a fixed factor.
D. average output of a variable factor.
12. Which of the following is true when the total product of labor is maximized?
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14. Which of the following is true at the point where diminishing returns set in?
A. Money.
B. Land.
C. Labour.
D. Capital.
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21. At what point in the graph shown below does the Law of Diminishing Returns
set in?
Product
AP
Input
A B C D
MP
A. Point A
B. Point B
C. Point C
D. Point D
23. In the relationship between total product, average product and marginal
product, the average product equals the marginal product when average
product is
A. decreasing.
B. increasing.
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C. maximum.
D. negative.
PART B
1. Mardi Bhd. a fruit producer has the following production function. Answer the questions
based on the table given.
5 10 1800
5 20 2400
5 30 3100
5 40 4200
5 50 5500
5 60 6300
5 70 7000
5 80 6300
5 90 6000
a) Is Mardi Bhd. operating in the short run? Give a reason for your answer.
(2 marks)
b) Calculate the values of average and marginal product of the mangoes picked.
(4 marks)
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f) Name the law that the governs the production of the firm above.
(1 mark
2. The table below shows the production function of an agricultural product. Answer the
following question.
1 2 70
2 2 80
3 2 90
4 2 90
5 2 80
6 2 70
7 2 60
8 2 50
c) Explain the law of diminishing returns and identify the level of variable input in which
it starts to take place.
(3 marks)
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3. The following table shows the output of Ahmad Satay Sdn. Bhd. Based on the table
given answer question (a) to (c).
0 0
1 40
2 100
3 140
4 170
5 190
6 200
b) What is the relationship between the AP and MP when Ahmad Satay produces:
i) less than 100 satay a week.
(1.5 marks)
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4. A firm Primajaya produces Good Q using two factors: Capital and Labour. The total
product of good Q and the number of workers employed are shown in table below.
0 0
1 7
2 15
3 25
4 30
5 34
6 37
7 40
b) Sketch and label the average product and marginal product curves.
(2 marks)
c) Define the law of diminishing marginal returns and state at which number of
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0 0
1 21
2 50
3 69
4 76
5 80
6 80
7 78
ii) Determine the corresponding number of labour employed by this firm when the
diminishing returns set in.
(1 mark)
iii) Explain why the firm is still hiring labour even when diminishing returns has occurred.
(2 marks)
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PART A
2. If a firm’s total cost is RM 50 when 10 units are produced and RM 55 when 11 units
are produced, the marginal cost of the 11th unit is
A. RM 5
B. RM 1
C. RM 0.50
D. RM 605
5. The reason that the marginal cost curve eventually increases as output increases for
a typical firm is because
A. of diseconomies of scale.
B. of minimum efficient scale.
C. of the law of diminishing returns.
D. normal profit exceeds economic profit.
6. The change in total cost resulting from a one-unit increase in production is called
A. average cost.
B. average variable cost.
C. total variable cost.
D. marginal cost.
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A. a downward and upward sloping of the long run average total cost curve
respectively.
B. a vertical long run average total cost curve.
C. a horizontal long run average total cost curve.
D. a persistent increase in the cost of production of a firm.
8. The cost that is greater than zero when nothing is produced and that changes as the
level of output changes
A. marginal cost.
B. average variable cost.
C. average cost.
D. average fixed cost.
13. Constant return to scale means that as all inputs are increased,
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14. A company could produce 99 units of a good for RM316 or produce 100 units of the
same good for RM320. The marginal cost of the 100th unit is
A. RM 3.20
B. RM 4.00
C. RM 320
D. cannot be calculated with this information.
A. RM 0
B. RM 20
C. RM 30
D. RM 50
16. In the above table, the total fixed cost at 3 units of output is:
A. RM 20
B. RM 60
C. RM 30
D. RM 90
A. returns to scale.
B. marginal output of a variable factor.
C. marginal output of a fixed factor.
D. average output of a variable factor.
A. increase by 40%.
B. double.
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19. Which of the following statement about long run average cost curve of a firm is true?
A. The firm is facing diseconomies of scale when average total cost decreases as
output expands.
B. The firm is facing economies of scale when average total cost decreases as
output expands.
C. The firm is facing diseconomies of scale when average total cost increases as
output falls.
D. The firm is facing diseconomies of scale when average total cost remains
constant as output expands.
20. A Firm’s average fixed cost when producing 1500 units of output equals RM5. When
750 units of output are produced
21. Average variable cost and marginal cost are equal at the output where;
A. fall.
B. initially fall, and then increase.
C. remain constant.
D. increase.
23. The costs that depend on output in the short run are:
A. the downward sloping segment of the long run average total cost curve
B. the downward sloping segment of the long run marginal cost curve
C. a downward shift of the long run average total cost curve
D. the upward sloping segment of the long run average total cost curve
25. The period at which at least one input is fixed in quantity is the:
A. long run
B. production run
C. short run
D. investment decision
26. When the average total cost curve is rising, then the marginal cost curve will be:
PART B
1. The following table shows the costs of an accounting firm with fixed cost of RM100.
Fill in the blanks.
Total Total Variable Total Cost Average Cost Marginal Cost Average
Product Cost Variable Cost
(RM)
(RM)
(RM) (RM) (RM)
1 90
2 170
3 240
4 300
5 370
6 450
7 540
8 650
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9 780
10 930
( 4 marks)
2. The following is the production and cost schedule of a firm in the short run.
Labour Total Cost Average Marginal Average Total Marginal
Cost Cost Variable Product Product
Cost (RM) (unit)
(RM) (RM) (unit)
(RM)
0 100 ∞ - - 0 -
1 160 5
2 210 12
3 250 21
4 300 28
5 360 33
b) In one diagram, show the relationship between average cots, average variable cost and
marginal cost.
(3 marks)
e) At what quantity of labour usage does the law of diminishing returns start to set in?
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(1 marks)
3. The table below shows the cost of production for a firm that sells its product at RM10
each.
0 10 -
1 23
2 8
3 6
4 5
5 7
6 10
7 14
a) Based on the data given, complete the columns of fixed cost, variable cost
and total cost.
(5 marks)
c) Based on your answer in question (b), should the firm continue its operation?
Justify your answer.
(3 marks)
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4. The next table shows the amount of output produced by a firm using two (2) types of
inputs, Labour (L) and Capital (K). Answer the questions below.
Labour Capital
100 10 5
250 20 10
600 40 20
1200 80 40
2000 160 80
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2200 5 - 5 8000 -
2000 6 6 9000
1800 7 7 10 200
1600 8 8 11 600
1400 9 9 13 200
1200 10 10 15 000
a) Fill in the columns for total revenue, marginal revenue and marginal cost.
(3 marks)
c) Is there any economic profit at the profit maximizing level of output and price?
If yes, how much? Show your calculation. Draw a diagram to show the
economic profit earned by the firm.
(4 marks)
(1 marks)
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