1. When more and more units of a variable factor are combined with constant amou

Question

1. When more and more units of a variable factor are combined with constant amount<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

of fixed factor, such that the variable factor becomes abundant compared to the

fixed factor, the output will:

a. increase at an increasing rate.

b. increase at a diminishing rate.

c. increase at a constant rate.

d. remain unchanged.

e. None of the above.

2. If marginal product is 8 units and average product is 4 units, the next worker will

cause

a. marginal product to decrease.

b. average product to increase by 4 units.

c. marginal product to decrease by 4 units.

d. marginal product to decrease by 2 units and average product to increase by 2

units.

e. average product to increase.

3. Assume that one laborer produces 6 units of output, two laborers produce 14 units,

three produce 20 units, and four produce 24 units. If the cost is $20 per laborer and

fixed costs are $100, the average total cost at 24 units of output is

a. $7.50.

b. $3.33.

c. $4.17.

d. $100.

e. $180.
9. Assume that marginal revenue equals rising marginal cost at 100 units of output. At

this output level, a firm's total fixed cost is $400 and its total variable cost is $600. If

the price of the product were $3 per unit and the firm produces at its profit

maximizing level, the firm will earn an economic profit equal to

a. -$600.

b. -$700.

c. $200.

d. -$1,000.

e. -$400.
11. Given a perfectly competitive market structure, a firm's total fixed costs are $195,

average variable costs are $4, marginal revenue is $6, and the quantity demanded is

65. Assuming the firm is a profit maximizer, what is the firm%u2019s total profit?

a. $145

b. -$65

c. -$195

d. -$455

e. This firm will shut down because it is losing money.

Explanation / Answer

First question is answered below.

Correct option: (b) increase at a diminishing rate

Reason: As inputs employed increase, output will increase at an increasing rate and then starts to increase slowly, at a diminishing rate.

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