Question

​ Ray’s Radios believed the synergies between radio production and battery production could be realized if he expanded. However, due to overseeing the battery expansion Ray devoted less time to the radio business leading to the radio unit costs increasing. At this point, Ray’s Radios should

	a.	​Increase production of the batteries
	b.	​Divest itself from the production of the batteries
	c.	​Shut down the production of the batteries
	d.	​None of the above

Which one of the statements is true?​

	a.	​Diminishing returns is a long-run concept while decreasing returns to scale is a short and long-run concept.
	b.	​Diminishing returns is a long-run concept while decreasing returns to scale is a short-run concept.
	c.	​Diminishing returns is a both short and long-run concept while decreasing returns to scale is a short-run concept.
	d.	​Diminishing returns is a short-run concept while decreasing returns to scale is a long-run concept.

Answer 1

Question 1

Answer is Option C

​​​​Shut down the production of batteries.

His believes were not practical. He should not look for expansion in production of batteries. He should concentrate on radio production as primary product.

Question 2

Answer is Option D

Diminishing returns is a short run concept while decreasing returns is a long run concept.

Diminishing returns states that when one unit of varibale factor is increased in production while other fixed factors remain constant then the output per unit ofvariable factor diminishes. This is short run concept.Decreasing returns is situation when all the factors of production have a increase but the proportionate increase in output is low.