Question

7. The basic rule in marginal analysis is that an activity should continue as long as the marginal benefit is at least as large as the marginal cost.

Group of answer choices

True

False

8. The average fixed cost curve is continually downward sloping.

Group of answer choices

True

False

9. Market failures refer to situations in which it might be desirable to have the government try to “fix” a problem created in a market. One type of market failure involves public goods. Which of the following is correct regarding public goods?

Group of answer choices

Public goods refer to any good that is provided by the government.

Public goods are rarely provided by private firms.

Public goods are excludable.

Public goods are depletable.

Answer 1

Question 7

True

The activity should continue until the marginal benefit > marginal cost and stop at the point where marginal benefit = marginal cost and not continue after that as there will be losses. Marginal benefit is the additional benefit gained from an extra unit produced and marginal cots of the additional cost incurred from the extra unit produced. Thus it will be profitable to produce only till the point where marginal benefit > marginal cost and stop where marginal benefit = marginal cost.

Question 8

True

The average fixed cost curve is continually downward sloping. This is because the fixed cost is constant over any level of output produced and thus the fixed cost curve is a horizontal straight line. Since average fixed cost is the average of the fixed cost (which is constant or same for any output level), thus the average of any constant value over increasing number of output levels is continuously decreasing.

Question 9

Option A is correct - Public goods refer to ay good that is provided by the government.

Public goods are those goods that are provided by the government to the society in case of market failure when the market fails to provide them causing inefficiencies in the market. Public goods are non-excludable (no one is excluded form using it) and non-rivalrous (consumption by one person does not reduce the quantity available for others to consume it).

Thus public goods like defence, highways, street light, public parks etc. are provided by the government.