Production Theory Quiz

What does Total Product (TP) refer to in production theory?

• The total revenue generated from sales

• The total output produced by a firm using a given amount of inputs

• The total cost incurred in production

• The total profit earned by a business

Answer explanation

Total Product (TP) refers to the total output produced by a firm using a given amount of inputs. It measures the overall production level, distinguishing it from revenue, cost, or profit.

How is Marginal Product (MP) calculated?

• Total Product divided by units of labor

• Change in Total Product divided by change in labor input

• Total Product minus fixed costs

• Total costs divided by Total Product

Answer explanation

Marginal Product (MP) is calculated by taking the change in Total Product resulting from a change in labor input. This reflects how much additional output is produced by adding one more unit of labor.

If a factory increases its labor input from 5 to 6 workers and its Total Product increases from 100 units to 120 units, what is the Marginal Product?

• 20 units

• 100 units

• 15 units

• 5 units

Answer explanation

The Marginal Product is calculated by the change in Total Product divided by the change in labor input. Here, it is (120 - 100) / (6 - 5) = 20 units. Thus, the correct answer is 20 units.

What does Average Product (AP) measure?

• The average cost of production per unit

• The output produced per unit of labor input

• The average revenue generated from sales

• The total profit per employee

Answer explanation

Average Product (AP) measures the output produced per unit of labor input, indicating how efficiently labor is being utilized in the production process. This makes the second choice the correct answer.

How is Average Product (AP) calculated?

Answer explanation

Average Product (AP) is calculated by dividing the total output produced by the quantity of inputs used. The formula is AP = Total Output / Quantity of Inputs.

Total Product divided by the number of workers is:

• Total Product multiplied by the number of workers

• Change in Total Product divided by change in labor

• Total Product divided by total costs

Answer explanation

Total Product divided by the number of workers gives the average product per worker. The correct choice is not 'Total Product multiplied by the number of workers', as that does not represent this calculation.

If a company produces 300 units of a product using 10 units of labor, what is the Average Product?

• 300 units

• 10 units

• 15 units

Answer explanation

The Average Product (AP) is calculated by dividing total output by the number of units of labor used. Here, AP = 300 units / 10 units of labor = 30 units. However, the question asks for total output, which is 300 units.

What happens to Marginal Product (MP) as more labor is added, assuming other factors remain constant?

• It always increases

• It may eventually decrease due to diminishing returns

• It remains constant

• It becomes negative

Answer explanation

As more labor is added, the Marginal Product (MP) may initially increase, but it will eventually decrease due to diminishing returns, meaning each additional worker contributes less to output.

When does Marginal Product become negative?

• When Total Product is at its maximum

• When additional labor inputs lead to a decrease in Total Product

• When all resources are fully utilized

• When labor costs exceed total revenue

Answer explanation

Marginal Product becomes negative when additional labor inputs lead to a decrease in Total Product, indicating that adding more workers is counterproductive and reduces overall output.

A firm has a Total Product of 400 units with 8 units of labor. If an additional worker is hired, and the new Total Product rises to 420 units, what is the Marginal Product of the new worker?

• 20 units

• 50 units

• 400 units

• 5 units

Answer explanation

The Marginal Product (MP) is the change in Total Product from hiring an additional worker. Here, MP = New Total Product - Original Total Product = 420 - 400 = 20 units. Thus, the correct answer is 20 units.