Question

1. The manufacturing process for electric automobiles is subject to learning curves, so future average cost of production declines as current production increases. Which of the following actions by the manufacturer would take advantage of the learning curve character?            
A.        Increase current production above the profit maximizing level in order to gain cost advantages in the future
B.        Decrease current production below the profit maximizing level in order to earn higher profits in the future
C.        Decrease current production below the profit maximizing level in order to save money now and in the future           
D.        Increase current production above the profit maximizing level in order to avoid higher costs in the future

2. You own a pizza restaurant, and the member is your kitchen staff are great workers and equally able. However, you notice that your kitchen productivity is subject to diminishing marginal returns. If so, does this mean that the third person to show up for work generates higher marginal product than the seventh person to show up for work?

A. True

B. False

Answer 1

1) Solution: Decrease current production below the profit maximizing level in order to save money now and in the future

Explanation: As suggested by the Learning curve that there are great opportunities for cost reduction thus the manufacturer's current production will be reduced below the profit maximizing level for saving the money now and in the future

2) Solution: True

Explanation: The law of diminishing marginal returns states that in all productive processes, adding more of one factor of production, while holding all others constant, will at some point yield lower per-unit returns.