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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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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