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ECON3140 – Intermediate Microeconomics
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Practice Questions for Chapter 6: Firms and ProductionECON3140 – Intermediate Microeconomics
6.1 The Ownership and Management of Firms
1) Economists typically assume that the owners of firms wish to
A) produce efficiently.
B) maximize sales revenues.
C) maximize profits.
D) All of the above.
2) An organization that converts inputs (like Labor, Capital etc.) into output can be a
A) firm.
B) sole proprietorship.
C) corporation.
D) All of the above.
3) Efficient production occurs if a firm
A) cannot produce its current level of output with fewer inputs.
B) given the quantity of inputs, cannot produce more output.
C) maximizes profit.
D) All of the above.
4) Limited liability is a benefit to
A) sole proprietorships.
B) partnerships.
C) corporations.
D) All of the above.
5) What is one of the biggest differences between a sole proprietorship and a corporation?
A) Sole proprietorships offer stock.
B) Corporation shareholders elect the managers of the firm.
C) Sole proprietorships have limited liability.
D) Corporations are the only profitable firms.
6) Which entity produces the greatest proportion of U.S. gross national product?
A) government
B) non-profit organizations such as hospitals
C) firms
D) universities
7) Technological efficiency is
A) a necessary and sufficient condition for profit maximization.
B) a sufficient but not necessary condition for profit maximization.
C) a necessary but not sufficient condition for profit maximization.
D) a theoretical construct with little connection to the real world.
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,8) In China, firms owned by the government are known as
A) state-owned enterprises (SOEs).
B) government enterprises.
C) corporations.
D) government owned partnerships.
9) Since 1999, the number of small state-owned enterprises (SOEs) in China has
A) decreased, but the large SOEs continue to hold a large proportion of industrialized
assets.
B) increased, but large SOEs has decreased.
C) decreased along with the large SOEs.
D) remained unchanged.
10) Firms maximize profit when
A) the additional benefit from producing a good equals the additional cost of producing that good.
B) MR = MC.
C) the derivative of the profit function with respect to output is zero.
D) All of the above.
11) The nonprofit or not-for-profit sector consists of organizations that
A) intend to earn a profit.
B) are always inefficient.
C) are primarily concerned with the welfare of their own employees.
D) typically pursue social or public interest objectives.
For the following, please answer "True" or "False" and explain why.
12) Only corporations benefit from limited liability.
Answer: True. Individuals in sole proprietorships and partnerships are personally
responsible for debt.
13) What do we mean by efficient production?
Answer: Efficient production implies that no inputs are wasted. If a given level of output is
efficiently produced it is not possible to produce the same amount with less inputs.
Section: The Ownership and Management of Firms
6.2 Production
1) Which of the following statements best describes a production function?
A) the maximum profit generated from given levels of inputs
B) the maximum level of output generated from given levels of inputs
C) all levels of output that can be generated from given levels of inputs
D) all levels of inputs that could produce a given level of output
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, 2) With respect to production, the short run is best defined as a time period
A) lasting about six months.
B) lasting about two years.
C) in which all inputs are fixed.
D) in which at least one input is fixed.
3) In the long run, all factors of production are
A) variable.
B) fixed.
C) materials.
D) rented.
4) Which of the following is least likely to be considered a capital input?
A) a sewing machine
B) a tractor
C) a telephone
D) a ten dollar bill
5) A production function tells the firm
A) the maximum it can expect to produce with a given mix of inputs.
B) the average it can expect to produce with a given mix of inputs.
C) the minimum it can expect to produce with a given mix of inputs.
D) the average level of production for other firms in the industry.
6) Which of the following inputs is easier to increase in the short run?
A) number of airplanes
B) size of the airport terminal
C) ticket-counter sales people
D) number of luggage carousels
For the following, please answer "True" or "False" and explain why.
7) Production functions only apply to advanced economies.
Answer: False. Production functions describe the relationship between inputs and outputs,
and apply to all kinds of economies.
8) The length of the short run is the same for all firms.
Answer: False. Firms differ in their ability to change the amount of capital they employ.
Therefore, the short-run period is likely different for firms in different industries.
9) Explain why labor might not always be a variable input.
Answer: In the real world, units of labor are not identical. Many firms employ highly
specialized units of labor. Their supply might be very inelastic so that the firm cannot easily
increase the amount of this type of labor.
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