MBA701 Exam Questions and Correct Answers
If the last unit of input increases total product, we know that the marginal product is .
a . positive Correct
b . negative
c. zero
d . indeterminate
Total product is the maximum level of output that can be produced with a given level of inputs. The marginal product of an
input is the change in total output due to the last unit of an input. If the last unit of the input increases total product, this
means the marginal product is positive (the range over which marginal product increases is known as the range of increasing
marginal returns). Conversely, if the marginal product is negative, this indicates that the last unit of the input reduced th e
marginal product.
The correct answer is: positive
,Question 2
Incorrect
Mark 0.00 out of 7.25
Firm managers should use inputs at levels where the .
a . marginal benefit equals marginal cost Incorrect
b . price equals marginal product
c. value marginal product of labor equals wage
d . marginal benefit equals marginal cost and value marginal product of labor equals wage
To maximize profits, a firm manager should use inputs at levels at which the marginal benefit equals the marginal cost. The
manager should continue to employ labor up to the point where the value of marginal product of labor (VMP L) equals the
wage (w) in the range of diminishing marginal product.
The correct answer is: marginal benefit equals marginal cost and value marginal product of labor equals wage
Question 3
Incorrect
Mark 0.00 out of 7.25
In general, as the usage of an input increases, marginal product .
a . initially increases then begins to decline
b . initially decreases then begins to increase Incorrect
c. consistently decreases
d . consistently increases
As the usage of an input increases, marginal product initially increases (increasing marginal returns) due to specialization,
then begins to decline (decreasing marginal returns) due to crowdedness and coordination issues, and eventually becomes
negative (negative marginal returns). For instance, if you hire the second worker in your business, MP L is likely to increase
within this lower range of workers, as hiring more workers will allow for specialization and greater efficiency. If you keep hiring
workers, your business becomes crowded and workers will need to coordinate with each other, while performing tasking,
spending more time for coordination, and that marginal product of labor declines. If you continue hiring workers, the marginal
product of labor even become negative after certain level.
The correct answer is: initially increases then begins to decline
, Refer to the accompanying figure above. Suppose the firm sells its output for $25 per unit, and it pays each of its workers
$1,000 per week. The firm maximizes profit by hiring . [To maximize profit, firm hires workers up to VMPL = W; VMPL = P
× MPL].
a . 2 workers
b . 3 workers Incorrect
c. 4 workers
d . 5 workers
To maximize profit, a firm hires workers up to the point where VMPL = w. We know that VMPL= P (P is given at $25) × MPL.
We can calculate the MPL for each worker from the graph (and hence get the VMP L for each worker and compare it to w
(which is given at $1,000). From the graph, the first worker adds 120 units to output (moving on the x-axis from 0 to 1 (1 unit
to the right), output increases from 0 to 120 on the x-axis; it’s the ΔQ/ΔL). So, VMPL for the first worker is 25 × 120 = $3,000
> w. Thus, the firm should go ahead and hire this worker. Similarly, the second worker adds 90 units to output (210-120). So,
VMPL for the second worker is 25 × 90 = $2,250 > w. The firm should also hire this worker. The third worker adds 75 units to
output (285-210). So, VMPL for the third worker is 25 × 75 = $1,875 > w (and that this worker should be hired). The fourth
worker adds 60 units to output (345-285). So, VMPL for the fourth worker is 25 × 60 = $1,500 > w (worker should be hired as
well). The fifth worker adds 45 units to output (390-345). So, VMPL for the fifth worker is 25 × 45 = $1,125 > w (a yes decision
too). The sixth worker adds 30 units to output (420-390). So, VMPL for the fifth worker is 25 × 30 = $750 < w. The firm should
not hire this worker. Therefore, the firm maximizes profit by hiring 5 workers in this example.
The correct answer is: 5 workers
If the last unit of input increases total product, we know that the marginal product is .
a . positive Correct
b . negative
c. zero
d . indeterminate
Total product is the maximum level of output that can be produced with a given level of inputs. The marginal product of an
input is the change in total output due to the last unit of an input. If the last unit of the input increases total product, this
means the marginal product is positive (the range over which marginal product increases is known as the range of increasing
marginal returns). Conversely, if the marginal product is negative, this indicates that the last unit of the input reduced th e
marginal product.
The correct answer is: positive
,Question 2
Incorrect
Mark 0.00 out of 7.25
Firm managers should use inputs at levels where the .
a . marginal benefit equals marginal cost Incorrect
b . price equals marginal product
c. value marginal product of labor equals wage
d . marginal benefit equals marginal cost and value marginal product of labor equals wage
To maximize profits, a firm manager should use inputs at levels at which the marginal benefit equals the marginal cost. The
manager should continue to employ labor up to the point where the value of marginal product of labor (VMP L) equals the
wage (w) in the range of diminishing marginal product.
The correct answer is: marginal benefit equals marginal cost and value marginal product of labor equals wage
Question 3
Incorrect
Mark 0.00 out of 7.25
In general, as the usage of an input increases, marginal product .
a . initially increases then begins to decline
b . initially decreases then begins to increase Incorrect
c. consistently decreases
d . consistently increases
As the usage of an input increases, marginal product initially increases (increasing marginal returns) due to specialization,
then begins to decline (decreasing marginal returns) due to crowdedness and coordination issues, and eventually becomes
negative (negative marginal returns). For instance, if you hire the second worker in your business, MP L is likely to increase
within this lower range of workers, as hiring more workers will allow for specialization and greater efficiency. If you keep hiring
workers, your business becomes crowded and workers will need to coordinate with each other, while performing tasking,
spending more time for coordination, and that marginal product of labor declines. If you continue hiring workers, the marginal
product of labor even become negative after certain level.
The correct answer is: initially increases then begins to decline
, Refer to the accompanying figure above. Suppose the firm sells its output for $25 per unit, and it pays each of its workers
$1,000 per week. The firm maximizes profit by hiring . [To maximize profit, firm hires workers up to VMPL = W; VMPL = P
× MPL].
a . 2 workers
b . 3 workers Incorrect
c. 4 workers
d . 5 workers
To maximize profit, a firm hires workers up to the point where VMPL = w. We know that VMPL= P (P is given at $25) × MPL.
We can calculate the MPL for each worker from the graph (and hence get the VMP L for each worker and compare it to w
(which is given at $1,000). From the graph, the first worker adds 120 units to output (moving on the x-axis from 0 to 1 (1 unit
to the right), output increases from 0 to 120 on the x-axis; it’s the ΔQ/ΔL). So, VMPL for the first worker is 25 × 120 = $3,000
> w. Thus, the firm should go ahead and hire this worker. Similarly, the second worker adds 90 units to output (210-120). So,
VMPL for the second worker is 25 × 90 = $2,250 > w. The firm should also hire this worker. The third worker adds 75 units to
output (285-210). So, VMPL for the third worker is 25 × 75 = $1,875 > w (and that this worker should be hired). The fourth
worker adds 60 units to output (345-285). So, VMPL for the fourth worker is 25 × 60 = $1,500 > w (worker should be hired as
well). The fifth worker adds 45 units to output (390-345). So, VMPL for the fifth worker is 25 × 45 = $1,125 > w (a yes decision
too). The sixth worker adds 30 units to output (420-390). So, VMPL for the fifth worker is 25 × 30 = $750 < w. The firm should
not hire this worker. Therefore, the firm maximizes profit by hiring 5 workers in this example.
The correct answer is: 5 workers
