Question

1. The production possibility frontier is the

A. slope of the budget constraint.

B. set of maximum achievable outputs using all available resources.

C. ability to produce log cabins and other goods using locally available materials.

D. idea that increasing inputs leads to a slowing of growth of outputs.

2. Average cost will be a minimum at a level of firm output that is:

A. greater than where diminishing returns begin.

B. where total product is at a maximum.

C. where average product is at a minimum.

D. where marginal cost is at a minimum.

E. where marginal product is at a maximum.

3. Which of the following conditions best describes profit-maximizing monopolies?

A. Demand could be elastic or inelastic and the firm may or may not earn economic profits

B. The monopoly will earn economic profits and be producing where demand is elastic

C. The monopoly will earn economic profits and be producing where demand is inelastic

D. The monopoly will not necessarily earn economic profits and be producing where demand is elastic

E. The monopoly will not necessarily earn economic profits and be producing where demand is inelastic

Answer 1

Ans 1: B. set of maximum achievable outputs using all available resources.

It represents the combinations of achievable output which we can produce with given resources.

Ans 2: E. where marginal product is at a maximum.

The maximum of marginal product comes before maximum of average product, when MP is rising and reaches maximum, at that case Average product is rising and AC is falling and at minimum.

Ans 3: B. The monopoly will earn economic profits and be producing where demand is elastic

Always earn profit and produce in elastic region.