Question

If the total output rises while the cost per unit fails, a firm is understood to be enjoying_____:

	a.	increased profits.
	b.	economies of scale.
	c.	maximum efficiency.
	d.	all of the above.

The law of diminishing marginal productivity pertains to_____:

	a.	the short run.
	b.	the long run.
	c.	both the short run and the long run.
	d.	the short run for small firms, and the long run for large firms.

Fixed inputs are_____:

	a.	those inputs to production that have a fixed price.
	b.	those inputs to production that result in a fixed variable product.
	c.	those inputs to production that cannot be varied in the short run.
	d.	those inputs to production that have a fixed market.

Firms that compete in perfectly competitive markets must decide_____:

	a.	the quantity to produce.
	b.	the price to charge.
	c.	the price to charge and the quantity to produce.
	d.	none of the above.

When deciding whether to continue operations or shutdown, a perfectly competitive firm should_____:

	a.	continue operations if the price of the firm's product falls below the minimum average variable cost.
	b.	shut down if the price of the firm's product falls below the minimum average variable cost.
	c.	continue operations if the marginal cost of a new invention for the firm surpasses average variable cost.
	d.	shut down if it can cover all of its costs, but only at a diminishing marginal rate.

An organization with 50 employees will add 10 employees next month. This is_____:

	a.	a long run decision.
	b.	a long run and a short run decision.
	c.	a short run decision.
	d.	none of the above.

Which of the following is true regarding accounting profit?

	a.	It is typically smaller than economic profit.
	b.	It includes all explicit and implicit cost of production.
	c.	It includes depreciation.
	d.	All of the above.

Answer 1

Ans: b ) Economies of scale

Explanation:

Economies of scale occurs when the cost per unit falls with an increase in the total output. It states that decrease in the cost of production with the increase in the production of output.

Ans: a ) the short run

Explanation:

The law of diminishing marginal productivity pertains to the short run due to some fixed factors of production.

Ans: c ) those inputs to production that cannot be varied in the short run.

Explanation:

There is no fixed inputs in the long run.

Ans: a ) the quantity to produce

Explanation:

Firms that compete in perfectly competitive markets must decide the quantity to produce because the firms are price taker whereas the industry is the price maker under perfect competition. It means the firms can not decide the price under perfect competition market structure.

Ans: b ) shut down if the price of the firm's product falls below the minimum average variable cost.

Explanation:

A perfectly competitive firm should shut down if the price of the firm's product falls below the minimum average variable cost. But a perfectly competitive firm should continue operation  if the price of the firm's product is above the minimum average variable cost.

Ans: c ) a short run decision

Ans: It includes depreciation

Explanation:

Accounting profit includes explicit cost . Explicit cost refers to operating expenses , depreciation , interest and taxes.