Question

6. The total product of a firm is as follows, which statement is corvect A) MP, is increasing in phase 1 B) MP is increasing in phase II. is increasing in phs D) MP, is masimized in the edge of phase ll and Im. 7. Suppose in a particular production process that capital and labor are perfect If the substitutes so that three units of labor are equivalent to one unit of capital. price of capital is sa per unit and the price of labor is sı per unit, the firm should A) employ capital only B) employ labor only C) use three times as much capital as labor D) use three times as much labor as capital. & Diseconomies of scale exist when A) the firm's total cost falls as the level of output increases B) the firm's total cost increases as the level of output increases. C) the firm's average cost decreases as the level of output decreases D) the firm's average cost decreases as the level of output increases . If STC 300+4q+ 4q and SMC 4+ 8q where q is output and all fixed costs are sunk, the firm's short run supply curve is A) q-4.8p for pz4 and zero otherwise B) q 4+4p for pe4 and zero otherwise. D) q-o if pe4 and q-/8p-/z if p24 o. Identify the truthfulness of the following statements. I. A monopoly market consists of a single seller facing many buyers IL. Because the monopolist is the only seller of her product, she may sell any quantity that she chooses for any given price. A) Both I and II are true. C) I is true; II is false. B) Both I and II are false. D) I is false; II is true.

Answer 1

Answer (6) :  Let us first understand the relation between Total Product ( TP) and Marginal Product ( MP) and AP ( Average Product ). If TP rises at an increasing rate, MP too rises, but if TP rises, but at a diminishing rate, then MP falls, and When Average Product is at its maximum, then MP=AP. Therefore, from the given options , ‘option (B) MP is increasing in phase II’ is incorrect because TP is increasing in phase II , but at a diminishing rate, therefore MP falls in phase II , ‘option (C) AP is increasing in phase III is also incorrect as MP is non-existent in that phase, Option (D) MP is maximum in the edge between phase II and III is also incorrect as at that stage, MP is Zero or minimum. The Option (A) MP is increasing in phase I is the correct answer, as in that phase TP is rising at an increasing rate, therefore MP will also be rising.

Answer (7): From the given scenario, it is seen that labor and capital are perfect substitutes of each other in the production process, and that one unit of Capital is equivalent to 3 units of labor. From the given statement it is also seen that one unit of Capital costs $ 4, whereas one unit of labor costs $ 1. Now, since both these factors of production are perfect substitutes of each other, therefore, the firm should employ only labor. This is because, one unit of labor is $ 1, i.e. 3 units of labor would cost him $ 3, which is equivalent to one unit of Capital, which will cost him $ 4. So, if he employs 3 units of labor in place of 1 unit of capital, he is saving ($4 -$3) = $ 1 in his employment cost. Therefore, it is beneficial for the employer to employ only labor. Option B) employ labor only is the correct answer.

  Answer (8): Diseconomies of scale exist when B) the firm’s total cost increases as the level of output increases. This is because diseconomies of scale refers to the overall loss in the total cost suffered by a company or firm, as a result of the extra growth or super normal output, which increases the cost of bearing some of the factors of production. This usually happens when the firm has on the path of producing huge number of products, and in due to too much production, some of the factors of production become too costly, which ultimately results in the firm losing some of the profits.

Answer (10): Here both the statements are true (Correct Answer is A) Both I and II are true) because, in a monopoly , there is only one seller of a particular product and has no competitors. Since the seller has no competitors, it is solely up to him to control the flow and priding g of the product. The monopolist may decide to increase and decrease the price or the quantity to be sold in the market at her own desire, because in any case, the demand for the product will not get affected by the supplier actions.