Test: The Theory of Production - JAMB MCQ

Production in economics refers to the process of creating goods and services. It involves combining inputs such as labor, capital, and raw materials to produce output that satisfies human wants and needs.

Financial production is not a recognized type of production. The other options represent different sectors of production, including agriculture, industry, and services.

According to the law of variable proportion, when additional units of a variable input are added to a fixed input, the marginal product initially increases but eventually decreases. This means that each additional unit of the variable input contributes less to total production.

Total product (TP) is calculated by multiplying the marginal product (MP) by the quantity of the variable input. The marginal product represents the additional output produced by each additional unit of the variable input.

Internal economies of scale occur when a firm experiences increasing returns to scale. This means that as the firm increases its scale of production by expanding its operations, it benefits from cost reductions and efficiency gains.

External economies of scale refer to cost reductions that occur due to the size of the industry or the external environment. These cost reductions are not specific to any individual firm but are shared by all firms within the industry. Factors such as improved infrastructure, availability of skilled labor, and technological advancements can lead to external economies of scale.

The concept of division of labor refers to the process of assigning specific tasks or activities to individuals or groups within an organization. It allows for specialization and increased efficiency as individuals become more skilled and proficient in performing their assigned tasks.

A perfectly elastic production function does not exist in economic theory. The other options represent different types of production functions that describe the relationship between inputs and outputs in the production process.

The law of diminishing returns states that as more units of a variable input are added, the total product increases at a decreasing rate. This means that the additional output produced by each additional unit of the variable input diminishes over time.

Changing the layout of a production facility is an example of a long-run production decision. In the long run, firms have the flexibility to make changes to their production processes, such as expanding or reorganizing their facilities, to improve efficiency and meet changing market conditions.