Question

The law of diminishing marginal returns starts: *

a) Before minimum marginal cost

b) After minimum marginal cost

c) After minimum MPP

d) When capital is a variable input

Which of the following statement is not correct: Average variable costs of production

a) Will fall than rise as more is produced.

b) has a minimum

c) graphs as a U-shaped curve.

d) falls as long as output is increased.

If marginal cost is above average total cost, then: *

a) Average total cost is falling

b) Average total cost is rising

c) Average total cost is constant

d) Marginal cost is rising

Which of the following cost will not change as output changes? *

a) average variable cost.

b) total variable cost.

c) total fixed cost

d) marginal cost.

Answer 1

1. Option B

Diminishing Marginal Returns occur when increasing production further results in lower levels of output. In other words, production starts to become less efficient.A Acompany may employ an additional factor of production. This may be another machine another employee, or some other factor. Diminishing Marginal Returns then occurs when these factors start producing fewer goods than previously. After particular point MC starts to rise. This is because the production of the goods has started to become less efficient.

2. Option D

AVC is ‘U’ shaped because of the principle of variable Proportions, which explains the three phases of the curve.Increasing returns to the variable factors, which cause average costs to fall, followed by Constant returns, followed by Diminishing returns, which cause costs to rise.

3.Option B

When marginal cost is above average total cost, average total cost will be rising.When marginal cost is below average total cost, average total cost will be falling. A firm is most productively efficient at the lowest average total cost, which is also where average total cost (ATC) = marginal cost (MC).

4.Option C

Fixed costs are those costs that must be incurred in fixed quantity regardless of the level of output produced.A fixed cost is a cost that remains constant. It does not change with the output level of goods and services. It is an operating expense of a business but is independent of business activity.