Question

Diminishing returns *

1 point

a. characterize all stages of production.

b. eventually occur in all short-run production situations.

c. are always associated with declining average product in the short-run.

d. exist in the short run, because as additional units of an input are hired, the firm has to accept less satisfactory units.

In the long run, average total cost exhibits a pattern just like the short run average total cost because of this reason. *

1 point

a. Increasing and decreasing returns are associated with more outputs produced.

b. Economies and diseconomies of scale are experienced as a firm gets bigger in size.

c. Law of diminishing returns starts to set in.

d. None of the above explains the shape of a long run average total cost curve

Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. Your aunt’s opportunity costs comprise *

1 point

a. the accounting costs.

b. the accounting costs and the implicit costs.

c. all economic costs.

d. none of the above

Answer 1

Question 1

Diminishing returns occur when an additional unit of variable input employed in fixed inputs produce less output in proportion to the employment of inputs. This stage of production can eventually occur in all short run production situations.

Option b. is correct

Question 2

As the scale of the firm increases, it experiences both economies and diseconomies of scale. Due to this reason, average cost first decreases and then increases and the long run average total cost exhibits a pattern just like the short run average total cost

Option b. is correct

Question 3

Economic Costs = Implicit + Explicit Cost

Opportunity cost involves both implicit and explicit cost.

So, Option c. is correct