Economics Practice Test – Theory of Production (Questions with Answers and Explanations)

If refinery achieves a reduction in cost by purchasing and transporting crude oil in large quantities, it enjoys ______ (JAMB 2013)

A. economies of scale
B. specialization
C. division of labour
D. diseconomies of scale

Firms embark on vertical integration in order to ______ (JAMB 2014)

A. enjoy economies of large-scale production
B. take over markets, formally controlled by other firms
C. prevent other firms from entering the market
D. reduce advertisement and marketing cost

In the process of production, total output is at maximum when ______ (JAMB 2011)

A. MP > 0   B. AP = 0   C. AP > 0    D. MP = 0

In the production process, the law of diminishing returns begins to set when ______ (JAMB 2018)

A. all inputs are variables
B. last variable input results to decrease in total product
C. last variable input adds less in relation to the previous variable input
D. All inputs are fixed

If additional unit of a variable factor input causes a fall in the marginal product, this implies that _____ (JAMB 2016)

A. total product starts declining
B. average product has become zero
C. diminishing returns has set in
D. increasing returns is operating