Question

Which of the following statement is true?

a. diminishing returns occur when a firm can change the amount of all the factors of production it uses.

b. if helena finds that the marginal benefit of eating an ice cream cone is equal to the marginal cost of eating an ice cream cone, then helena would be better off to eat one more ice cream cone.

c. the production possibilities curve is positively sloped.

d. none of the above are true statements

Answer 1

The correct answer is: b. if helena finds that the marginal benefit of eating an ice cream cone is equal to the marginal cost of eating an ice cream cone, then helena would be better off to eat one more ice cream cone.

This is an example of decision making using the marginal analysis. As long as the Marginal Benefit > Marginal Cost, the consumer will keep on consuming. The consumer will stop at Marginal Benefit = Marginal Cost since it is irrational to consume at the point where Marginal Benefit < Marginal Cost.

Option a is incorrect since diminishing returns is the decrease in the marginal output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant. That is, diminishing returns occur when a firm cannot change the amount of all the factors of production it uses

Option c is incorrect since the production possibilities curve is always negatively sloped.