Production Theory: Production Functions, Short Run, Long Run, Diminishing Returns, Returns to Scale, Productivity

1. A production function shows the relationship between

A price and quantity demanded
B inputs used and output produced
C income and consumption
D total revenue and profit

2. In production theory, the short run is a period in which

A all factors of production are fixed
B at least one factor of production is fixed
C all factors of production are variable
D output cannot change at all

3. In production theory, the long run is a period in which

A all factors of production are variable
B all factors of production are fixed
C labour is fixed but capital is variable
D output must be zero

4. A firm increases labour while capital remains fixed. This is most likely an example of

A long-run production
B short-run production
C returns to scale
D external economies only

5. Returns to scale occur when

A one variable factor is changed while others remain fixed
B all factors of production are changed in the same proportion
C price changes while output stays unchanged
D total revenue changes with price

6. Diminishing marginal returns occur when

A adding more of a variable factor to fixed factors eventually adds less extra output
B increasing all inputs causes output to increase more than proportionately
C total output immediately falls after the first worker
D average cost is always falling

7. Marginal product is

A total output divided by total workers
B extra output from employing one extra unit of a variable factor
C total revenue divided by output
D total cost divided by output

8. Average product is

A total product divided by units of variable input
B extra output from one extra worker
C total revenue divided by output
D marginal cost divided by average cost

9. If total product rises from 100 to 128 when one extra worker is employed, marginal product is

A 28
B 100
C 128
D 228

10. If 5 workers produce 200 units, average product of labour is

A 5
B 40
C 200
D 1000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A firm’s total product schedule is:

Workers: 1, 2, 3, 4, 5
Total product: 20, 46, 75, 100, 118

At which worker does diminishing marginal returns first occur?

A 2nd worker
B 3rd worker
C 4th worker
D 5th worker

12. A firm’s total product schedule is:

Workers: 0, 1, 2, 3, 4
Total product: 0, 12, 30, 45, 56

What is the marginal product of the 4th worker?

A 11
B 14
C 45
D 56

13. A firm’s total product schedule is:

Workers: 1, 2, 3, 4
Total product: 8, 22, 39, 52

What is the average product when 3 workers are employed?

A 13
B 17
C 39
D 52

14. If marginal product is greater than average product, average product will

A rise
B fall
C remain zero
D become negative

15. If marginal product is less than average product, average product will

A rise
B fall
C stay unchanged always
D equal total product

16. Average product is at its maximum when

A marginal product equals average product
B total product equals zero
C marginal product equals zero
D marginal product is negative

17. Total product is at its maximum when

A marginal product is zero
B average product is zero
C marginal product is at its maximum
D average product equals total cost

18. If marginal product becomes negative, total product

A rises faster
B rises slower
C stays constant
D falls

19. Which sequence of marginal products clearly shows diminishing marginal returns?

A 5, 10, 20, 40
B 30, 25, 18, 10
C 12, 12, 12, 12
D -2, 4, 10, 18

20. Which sequence of total product shows marginal product eventually becoming negative?

A 10, 25, 43, 58
B 8, 20, 29, 34
C 15, 28, 36, 35
D 5, 10, 20, 40

21. The law of diminishing marginal returns applies because

A at least one factor is fixed in the short run
B all factors are variable in the long run
C firms always face perfect competition
D prices always fall as output rises

22. A factory has fixed machinery. More workers are added until workers get in each other’s way. This is an example of

A diminishing marginal returns
B increasing returns to scale
C positive externality
D dynamic efficiency

23. Which is a likely cause of initially rising marginal product?

A specialisation and division of labour among workers
B overcrowding around fixed capital
C lack of tools per worker from the first worker
D falling worker motivation only

24. Which is a likely cause of falling marginal product?

A fixed capital becomes overcrowded as more labour is added
B all factors increase proportionately
C technology improves continuously
D output price rises

25. If marginal product of labour rises, then marginal cost is likely to

A fall
B rise
C stay unchanged always
D become total cost

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. If marginal product of labour falls, then marginal cost is likely to

A fall
B rise
C become zero
D equal average product

27. A firm doubles all inputs and output more than doubles. This is

A decreasing returns to scale
B constant returns to scale
C increasing returns to scale
D diminishing marginal returns

28. A firm doubles all inputs and output exactly doubles. This is

A increasing returns to scale
B constant returns to scale
C decreasing returns to scale
D negative marginal product

29. A firm doubles all inputs and output less than doubles. This is

A increasing returns to scale
B constant returns to scale
C decreasing returns to scale
D rising marginal utility

30. A firm increases all inputs by 25% and output increases by 40%. This shows

A increasing returns to scale
B constant returns to scale
C decreasing returns to scale
D diminishing marginal returns

31. A firm increases all inputs by 50% and output increases by 30%. This shows

A increasing returns to scale
B constant returns to scale
C decreasing returns to scale
D rising average product necessarily

32. Which is most closely linked to increasing returns to scale?

A economies of scale
B diseconomies of scale
C diminishing marginal returns
D negative externalities only

33. Which is most closely linked to decreasing returns to scale?

A economies of scale
B diseconomies of scale
C consumer surplus
D income elasticity

34. Which is an example of labour productivity?

A output per worker
B total cost per unit
C price per unit
D profit per worker only

35. A firm produces 900 units with 30 workers. Labour productivity is

A 30 units per worker
B 60 units per worker
C 870 units per worker
D 27000 units per worker

36. A firm produces 1200 units with 40 workers. After training, the same workers produce 1600 units. Labour productivity has

A fallen from 40 to 30
B risen from 30 to 40
C risen from 40 to 1600
D stayed unchanged

37. Which is most likely to increase labour productivity?

A better training and improved capital equipment
B lower skill levels
C more absenteeism
D less investment in technology

38. Which is most likely to reduce labour productivity?

A outdated machinery and poor motivation
B improved education
C better management
D innovation in production

39. Which is most likely to shift a production function upward?

A technological improvement
B lower demand for the product
C higher price of the product only
D lower consumer income

40. A production function is concerned mainly with

A technical relationship between inputs and output
B price consumers pay
C government tax revenue
D consumer preferences

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. Which statement best distinguishes diminishing returns from decreasing returns to scale?

A diminishing returns involve changing one factor with others fixed; decreasing returns to scale involve changing all factors
B diminishing returns occur only in the long run; decreasing returns occur only in the short run
C both mean the same thing in every case
D decreasing returns to scale require marginal product to become negative

42. A firm increases labour by 20% while capital stays fixed, and output rises by only 10%. This shows

A diminishing marginal returns or falling average returns to labour
B decreasing returns to scale
C increasing returns to scale
D constant returns to scale

43. A firm increases labour and capital by 20%, and output rises by only 10%. This shows

A diminishing marginal returns
B decreasing returns to scale
C increasing returns to scale
D constant marginal utility

44. A firm increases labour and capital by 20%, and output rises by 20%. This shows

A constant returns to scale
B increasing returns to scale
C decreasing returns to scale
D law of diminishing marginal returns

45. A firm increases labour and capital by 20%, and output rises by 35%. This shows

A decreasing returns to scale
B constant returns to scale
C increasing returns to scale
D negative productivity

46. Which situation is impossible under the normal short-run production relationship?

A total product rises while marginal product is positive
B total product falls while marginal product is negative
C average product rises while marginal product is above average product
D total product rises while marginal product is negative

47. Which statement is correct?

A marginal product can fall while total product is still rising
B total product must fall whenever marginal product falls
C average product is always greater than marginal product
D marginal product cannot be negative

48. A firm’s total product is rising at an increasing rate. This means marginal product is

A rising
B falling but positive
C zero
D negative

49. A firm’s total product is rising at a decreasing rate. This means marginal product is

A rising
B falling but positive
C zero
D negative

50. Which chain is most accurate?

A fixed capital + more labour → specialisation at first → rising MP → later overcrowding → falling MP
B all inputs doubled → law of diminishing returns → short-run fixed factors disappear
C falling MP → total product must immediately fall → productivity always becomes zero
D increasing returns to scale → output rises less than inputs → average cost rises

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. Answer: B

A wrong: price and quantity demanded show demand, not production.
B correct: a production function shows the technical relationship between inputs and output.
C wrong: income and consumption relate to macro/consumer theory.
D wrong: revenue and profit relate to firm objectives, not production function.

2. Answer: B

A wrong: if all factors are fixed, output cannot be adjusted properly.
B correct: short run means at least one factor of production is fixed.
C wrong: all factors variable describes the long run.
D wrong: output can change in the short run by changing variable factors such as labour.

3. Answer: A

A correct: in the long run, all factors of production are variable.
B wrong: that would prevent production adjustment.
C wrong: long run does not mean labour is fixed.
D wrong: output does not have to be zero.

4. Answer: B

A wrong: long run means all factors can vary.
B correct: labour changes while capital is fixed, so this is short-run production.
C wrong: returns to scale involve changing all inputs.
D wrong: external economies are cost advantages from industry growth, not this situation.

5. Answer: B

A wrong: changing one variable factor with fixed factors relates to diminishing returns.
B correct: returns to scale occur when all inputs change by the same proportion.
C wrong: price changes are not returns to scale.
D wrong: revenue changes are not returns to scale.

6. Answer: A

A correct: diminishing marginal returns happen when extra units of a variable factor add less extra output because fixed factors become limiting.
B wrong: this describes increasing returns to scale.
C wrong: total output does not have to fall immediately.
D wrong: average cost is not always falling.

7. Answer: B

A wrong: total output divided by workers is average product.
B correct: marginal product is the extra output from one more unit of variable input.
C wrong: total revenue divided by output is average revenue.
D wrong: total cost divided by output is average cost.

8. Answer: A

A correct: average product = total product / units of variable input.
B wrong: extra output from one extra worker is marginal product.
C wrong: total revenue divided by output is average revenue.
D wrong: MC/AC is not average product.

9. Answer: A

A correct: marginal product = 128 – 100 = 28.
B wrong: 100 is the original total product.
C wrong: 128 is the new total product.
D wrong: 228 adds both total product values.

10. Answer: B

A wrong: 5 is number of workers.
B correct: average product = 200 / 5 = 40 units per worker.
C wrong: 200 is total product.
D wrong: 1000 multiplies output by workers.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. Answer: C

A wrong: MP of 2nd worker = 46 – 20 = 26, which is higher than MP of 1st worker.
B wrong: MP of 3rd worker = 75 – 46 = 29, still rising.
C correct: MP of 4th worker = 100 – 75 = 25, which is the first fall from the previous MP of 29.
D wrong: diminishing returns already started at the 4th worker.

12. Answer: A

A correct: MP of 4th worker = 56 – 45 = 11.
B wrong: 14 is not the change from 3 to 4 workers.
C wrong: 45 is total product with 3 workers.
D wrong: 56 is total product with 4 workers.

13. Answer: A

A correct: AP with 3 workers = 39 / 3 = 13.
B wrong: 17 is not average product here.
C wrong: 39 is total product.
D wrong: 52 is total product with 4 workers.

14. Answer: A

A correct: if marginal product is above average product, it pulls the average product up.
B wrong: average product falls when MP is below AP.
C wrong: it does not remain zero.
D wrong: it does not become negative.

15. Answer: B

A wrong: AP rises when MP is greater than AP.
B correct: when MP is below AP, it pulls average product down.
C wrong: AP stays unchanged only when MP = AP.
D wrong: AP is total product divided by variable input, not total product.

16. Answer: A

A correct: average product is maximum where marginal product equals average product.
B wrong: total product being zero gives no meaningful maximum AP.
C wrong: MP = 0 is where total product is maximum.
D wrong: negative MP means total product is falling.

17. Answer: A

A correct: total product is maximised when marginal product is zero.
B wrong: average product being zero is irrelevant.
C wrong: maximum MP means total product is rising fastest, not maximum.
D wrong: average product and total cost are unrelated here.

18. Answer: D

A wrong: total product rises faster when MP is rising and positive.
B wrong: total product rises slower when MP is positive but falling.
C wrong: total product stays constant when MP is zero.
D correct: negative MP means extra input reduces total output.

19. Answer: B

A wrong: marginal product is rising.
B correct: marginal product falls from 30 to 25 to 18 to 10, showing diminishing marginal returns.
C wrong: marginal product is constant.
D wrong: marginal product is rising from negative to positive.

20. Answer: C

A wrong: total product rises throughout.
B wrong: total product rises throughout, though at a decreasing rate.
C correct: total product falls from 36 to 35, so marginal product for that unit is negative.
D wrong: total product rises at an increasing rate.

21. Answer: A

A correct: diminishing marginal returns occurs in the short run because at least one factor is fixed.
B wrong: when all factors are variable, returns to scale apply.
C wrong: market structure is not the reason.
D wrong: price changes do not cause the law.

22. Answer: A

A correct: adding workers to fixed machinery eventually causes overcrowding and falling marginal product.
B wrong: increasing returns to scale requires all inputs to increase.
C wrong: this is not an external benefit to third parties.
D wrong: dynamic efficiency involves innovation over time.

23. Answer: A

A correct: early extra workers may specialise, divide tasks and raise marginal product.
B wrong: overcrowding causes falling marginal product later.
C wrong: lack of tools usually lowers productivity.
D wrong: falling motivation reduces productivity.

24. Answer: A

A correct: with fixed capital, extra labour eventually has less capital to work with, reducing marginal product.
B wrong: changing all factors relates to returns to scale.
C wrong: technology improvement may raise productivity.
D wrong: output price does not directly determine marginal physical product.

25. Answer: A

A correct: if each worker adds more output, the extra cost per unit of output usually falls.
B wrong: rising MP usually lowers MC.
C wrong: MC does not always stay unchanged.
D wrong: MC does not become total cost.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. Answer: B

A wrong: falling MP means extra output from each worker falls, so cost per extra unit rises.
B correct: when marginal product falls, marginal cost usually rises.
C wrong: MC does not become zero.
D wrong: MC does not equal AP.

27. Answer: C

A wrong: decreasing returns to scale means output less than doubles.
B wrong: constant returns means output exactly doubles.
C correct: output more than doubles when all inputs double, so increasing returns to scale.
D wrong: diminishing marginal returns involves one variable input and fixed factors.

28. Answer: B

A wrong: increasing returns means output more than doubles.
B correct: if all inputs double and output exactly doubles, there are constant returns to scale.
C wrong: decreasing returns means output less than doubles.
D wrong: negative MP is short-run production.

29. Answer: C

A wrong: increasing returns means output more than doubles.
B wrong: constant returns means output exactly doubles.
C correct: output less than doubles when all inputs double, so decreasing returns to scale.
D wrong: marginal utility is consumer theory.

30. Answer: A

A correct: inputs rise 25% and output rises 40%, so output rises more than proportionately.
B wrong: constant returns would mean output rises 25%.
C wrong: decreasing returns would mean output rises by less than 25%.
D wrong: diminishing marginal returns is not the same as all inputs changing.

31. Answer: C

A wrong: increasing returns would require output to rise by more than 50%.
B wrong: constant returns would mean output rises by 50%.
C correct: output rises by only 30% when inputs rise by 50%, so decreasing returns to scale.
D wrong: average product does not necessarily rise.

32. Answer: A

A correct: increasing returns to scale cause output to rise more than inputs, lowering long-run average cost, so they link to economies of scale.
B wrong: diseconomies are linked to decreasing returns to scale.
C wrong: diminishing marginal returns is short-run.
D wrong: negative externalities are unrelated.

33. Answer: B

A wrong: economies of scale lower LRAC.
B correct: decreasing returns to scale imply output rises less than inputs, raising unit cost, linked to diseconomies of scale.
C wrong: consumer surplus is demand-side welfare.
D wrong: income elasticity measures demand response to income.

34. Answer: A

A correct: labour productivity means output per worker.
B wrong: total cost per unit is average cost.
C wrong: price per unit is not productivity.
D wrong: profit per worker is not the standard definition.

35. Answer: A

A correct: labour productivity = 900 / 30 = 30 units per worker.
B wrong: 60 is not supported.
C wrong: 870 subtracts workers from output.
D wrong: 27000 multiplies output by workers.

36. Answer: B

A wrong: original productivity is 1200 / 40 = 30, not 40.
B correct: productivity rises from 1200 / 40 = 30 to 1600 / 40 = 40.
C wrong: 1600 is output, not productivity.
D wrong: productivity changed.

37. Answer: A

A correct: training improves skills and better capital raises output per worker.
B wrong: lower skills reduce productivity.
C wrong: absenteeism reduces effective labour input.
D wrong: less investment weakens productivity.

38. Answer: A

A correct: poor machinery and low motivation reduce output per worker.
B wrong: education raises productivity.
C wrong: better management raises productivity.
D wrong: innovation raises productivity.

39. Answer: A

A correct: technological improvement allows more output from the same inputs, shifting the production function upward.
B wrong: lower demand affects sales, not technical production capacity.
C wrong: product price alone does not change technical input-output relationship.
D wrong: consumer income affects demand, not production function.

40. Answer: A

A correct: a production function is about the technical relationship between inputs and output.
B wrong: prices are part of demand/revenue analysis.
C wrong: tax revenue is public finance.
D wrong: consumer preferences are demand theory.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. Answer: A

A correct: diminishing returns occur when one factor changes and others are fixed; decreasing returns to scale occur when all factors change and output rises less than proportionately.
B wrong: diminishing returns are short-run, not long-run.
C wrong: they are not identical.
D wrong: decreasing returns to scale does not require negative marginal product.

42. Answer: A

A correct: only labour changes while capital is fixed, so this is a short-run falling return to labour situation.
B wrong: decreasing returns to scale needs all inputs to change.
C wrong: increasing returns to scale also needs all inputs to change.
D wrong: constant returns to scale also requires all inputs changing proportionately.

43. Answer: B

A wrong: both labour and capital change, so this is returns to scale, not diminishing marginal returns.
B correct: inputs rise by 20% but output rises by only 10%, so decreasing returns to scale.
C wrong: increasing returns require output to rise more than 20%.
D wrong: marginal utility is consumer theory.

44. Answer: A

A correct: inputs rise 20% and output rises 20%, so constant returns to scale.
B wrong: increasing returns require output to rise by more than 20%.
C wrong: decreasing returns require output to rise by less than 20%.
D wrong: diminishing marginal returns applies with fixed factors.

45. Answer: C

A wrong: decreasing returns require output to rise less than 20%.
B wrong: constant returns require output to rise exactly 20%.
C correct: output rises 35% when inputs rise 20%, so increasing returns to scale.
D wrong: productivity is not negative.

46. Answer: D

A wrong: positive MP means total product rises, so this is possible.
B wrong: negative MP means total product falls, so this is possible.
C wrong: MP above AP causes AP to rise, so this is possible.
D correct: if marginal product is negative, total product must fall, not rise.

47. Answer: A

A correct: marginal product can decline but remain positive, so total product still rises.
B wrong: total product falls only when marginal product is negative.
C wrong: MP can be above, equal to or below AP.
D wrong: MP can become negative if extra input reduces output.

48. Answer: A

A correct: if total product rises at an increasing rate, each extra input adds more output, so MP is rising.
B wrong: falling but positive MP means TP rises at a decreasing rate.
C wrong: zero MP means TP is at maximum.
D wrong: negative MP means TP falls.

49. Answer: B

A wrong: rising MP would make TP rise faster.
B correct: TP rising at a decreasing rate means MP is positive but falling.
C wrong: zero MP means TP stops rising.
D wrong: negative MP means TP falls.

50. Answer: A

A correct: early labour additions can raise MP through specialisation, but fixed capital eventually causes overcrowding and falling MP.
B wrong: diminishing returns requires fixed factors, not all inputs doubled.
C wrong: falling MP does not make TP fall unless MP becomes negative.
D wrong: increasing returns to scale means output rises more than inputs and average cost falls.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.