Lesson 4.1.4.3

4.1.4.3 The law of diminishing returns and returns to scale Quiz: AQA Economics, Unit 1

20 questions

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Lesson 4.1.4.3, The law of diminishing returns and returns to scale: 20 multiple choice questions for the AQA Economics (7136), Unit 1: Individuals, firms, markets and market failure, written with Revision Ninja.

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The 20 questions

  1. The short run in economics is best described as a period in which:

    • no factors of production are used.
    • all factors of production can be varied.
    • the firm is closed and produces nothing.
    • at least one factor of production is fixed.

  2. The long run in economics is best described as a period in which:

    • at least one factor of production is fixed.
    • the firm cannot change its size under any circumstances.
    • output is always zero.
    • all factors of production can be varied.

  3. The law of diminishing returns states that:

    • as more of a fixed factor is added, total output will always fall.
    • as all factors increase, marginal output always rises.
    • as output rises, average costs always rise.
    • as more of a variable factor is added to a fixed factor, the extra output from each additional unit will eventually fall.

  4. A farm has a fixed amount of land and adds workers. Output data: 1 worker gives 10 tonnes, 2 workers 25, 3 workers 35, 4 workers 40, 5 workers 40. At which worker does diminishing marginal returns first set in?

    • The fifth worker.
    • The third worker.
    • The fourth worker.
    • The second worker.

  5. A farm's total output is 10, 25, 35, 40 and 40 tonnes for 1 to 5 workers. What is the average product with 3 workers?

    • 10 tonnes per worker.
    • 11.7 tonnes per worker.
    • 15 tonnes per worker.
    • 35 tonnes per worker.

  6. Which of the following best defines marginal product?

    • the change in total output resulting from employing one more unit of a variable factor.
    • the total output divided by the number of workers.
    • the total cost divided by the total output.
    • the total revenue from all units sold.

  7. Returns to scale describe:

    • what happens to costs when wages rise.
    • what happens to output when all factors of production are increased in the same proportion.
    • what happens to price when demand rises.
    • what happens to output when only one factor is increased.

  8. A firm doubles all its inputs and output rises by more than double. What type of returns to scale does it experience?

    • Diminishing marginal returns.
    • Constant returns to scale.
    • Decreasing returns to scale.
    • Increasing returns to scale.

  9. A firm doubles all its inputs and output also exactly doubles. What is this called?

    • Decreasing returns to scale.
    • Negative returns.
    • Constant returns to scale.
    • Increasing returns to scale.

  10. A firm doubles all its inputs but output rises by only 60%. Which statement is correct?

    • The firm has decreasing returns to scale.
    • The firm has constant returns to scale.
    • The firm has increasing returns to scale.
    • The firm has no returns to scale.

  11. Which of the following is a likely reason for increasing returns to scale?

    • Communication problems within a very large organisation.
    • Specialisation and the use of larger, more efficient machinery across a bigger operation.
    • Falling motivation as managers become overloaded.
    • Increasing congestion as more workers use the same small workspace.

  12. Which of the following is the best example of decreasing returns to scale?

    • A firm doubles its inputs and output exactly doubles.
    • A firm doubles its inputs and output rises by four times.
    • A firm doubles its workforce and capital, but coordination problems mean output rises by less than double.
    • A business doubles its factories and output more than doubles because of bulk buying discounts.

  13. Why do diminishing returns to a variable factor imply rising marginal costs in the short run?

    • Because marginal cost is equal to total output divided by workers.
    • Because extra units of the variable factor produce less extra output, so each additional unit of output costs more to produce.
    • Because fixed costs rise when more workers are employed.
    • Because diminishing returns reduce the price of the variable factor.

  14. Which of the following best distinguishes returns to scale from diminishing returns?

    • They are identical concepts with different names.
    • Returns to scale involve changing one factor only, while diminishing returns involve changing all factors.
    • Returns to scale apply only to the short run, and diminishing returns only to the long run.
    • Returns to scale involve changing all factors in the long run, while diminishing returns involve changing one factor in the short run.

  15. A firm's marginal product becomes negative after a certain number of workers. What does this indicate?

    • The firm is operating in the long run.
    • Total output must rise further as workers increase.
    • Average product must be rising.
    • Adding another worker reduces total output, so the firm has too many workers for its fixed capital.

  16. Which statement best evaluates the importance of the law of diminishing returns for a firm's shape of marginal cost?

    • It helps explain why marginal cost eventually rises in the short run, shaping the upward sloping part of the MC curve.
    • It shows that marginal cost falls indefinitely as output rises.
    • It shows that average cost is always falling.
    • It has no relevance to cost curves.

  17. Which of the following would be an example of constant returns to scale?

    • A firm doubles its inputs and output triples.
    • A firm doubles its inputs and output falls by half.
    • A firm doubles its inputs and output increases by 10%.
    • A firm doubles its inputs and output doubles.

  18. Why might a firm experience increasing returns to scale up to a certain size, and decreasing returns beyond it?

    • Because the firm's fixed capital disappears at larger sizes.
    • Because decreasing returns occur only in planned economies.
    • Because the benefits of specialisation and efficiency come first, but coordination costs eventually grow faster than output.
    • Because increasing returns always last indefinitely.

  19. Evaluate: 'Diminishing returns mean that firms should never employ more than one worker.' Which response is most appropriate?

    • The claim is incorrect, because diminishing returns only means extra output falls, and positive extra output can still be profitable.
    • The claim is correct because one worker always produces the most output.
    • The claim is irrelevant because diminishing returns never occur.
    • The claim is correct because diminishing returns always make output negative.

  20. Which of the following statements about the short run and the long run is correct?

    • The short run and long run are defined by the length of time, not by whether factors are fixed.
    • The long run is a fixed period, such as one year, for all firms.
    • The short run is defined by whether at least one factor is fixed, and the long run by all factors being variable.
    • The short run is always longer than the long run.

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