1. In economic theory, if an additional worker adds less to the total output tha
ID: 1108227 • Letter: 1
Question
1. In economic theory, if an additional worker adds less to the total output than previous workers hired, it is because
a. the firm is experiencing diminishing returns to scale.
b. he/she is less skilled than the previously hired workers.
c. everyone is getting in each other's way.
d. there may be less that this person can do, given the fixed capacity of the firm.
2. In the long run, a firm is said to be experiencing decreasing returns to scale if a 10 percent increase in inputs results in:
a. a decrease in output from 100 to 90.
b. an increase in output from 100 to 110.
c. an increase in output from 100 to 105.
d. a decrease in output from 100 to 85.
3. When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC is
a. Cannot be determined from the above information
b. $5.
c. greater than $50.
d. between $45 and $50.
4. Which of the following actions has the best potential for experiencing economies of scope?
a. producing spaghetti and soft drinks
b. producing computers and software
c. producing a product that has appeal to a wider segment of the market
d. producing cars and trucks
5. Which of the following cost relationships is not true?
a. AFC = AC - MC
b. The change in TC/ the change in Q = MC
c. TVC = TC - TFC
d. The change in TVC/the change in Q = MC
6.Which of the following is not one of the strengths of the Cobb-Douglas production function?
a. The sum of the exponents indicates whether returns to scale are increasing, constant or decreasing.
b. Both marginal product and returns to scale can be estimated from it.
c. It shows a production function passing through increasing returns to constant returns and then to decreasing returns.
d. It can be converted into a linear function for ease of calculation.
Explanation / Answer
1> a. the firm is experiencing diminishing returns to scale.
Reason
As the capital and other resources are fixed, increasing labor will not increase the output at the same rate.
2> c. an increase in output from 100 to 105.
Reason
In decreasing return to scale, there is an increase in output with rising in input but the rate of hike in the input is higher.
3> a. Cannot be determined from the above information
Reason
We need to know the total amount produced to get the marginal product of it.
4> d. producing cars and trucks
Reason
Economies of scope is an economic theory stating that the average total cost of production decreases as a result of increasing the number of different goods produced. Here car and trucks are similar types of objects.
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