Question

Needing help with some homework questions

In the theory of utility, it is assumed that marginal utility:

diminishes as the consumption of a product increases.

remains constant when consumption of a product increases.

is always zero irrespective of any increase or decrease in consumption.

increases as the consumption of a product increases.

remains constant when the consumption of a product decreases.

Consumers should allocate their income so that the marginal utility associated with the:

first dollar spent is less for high-priced items than for low-priced items.

first dollar spent is equal for all goods.

last dollar spent is equal for all goods.

first dollar spent is greater for high-priced items than for low-priced items.

last dollar spent is lower for high-priced items than for low-priced items.

Which of the following statements is true?

Constant returns to scale occur when the short-run average-total-cost curve is horizontal.

When long-run average total costs are increasing, the firm enjoys economies of scale.

Constant returns to scale are never present in the real world.

Most industries exhibit long-run average costs that are shaped like an upside-down U.

When long-run average total costs are increasing, the firm has diseconomies of scale.

The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.

Figure 8.3

Cost C4 C3 SRA TC1 SRA TCz SRA TCa C1 LRATC Q1 Q2 Quantity

Which of the following would account for the shape of the long-run average-total-cost curve in Figure 8.3?

Specialization of labor

Low worker morale

Low productivity

Managerial problems

Administration overhead

Answer 1

The desire to consume a commodity decrease as more and more units of that commodity is consumed. It means that every successive units of the commodity consumed offers less and less satisfaction or the marginal utility from the consumption of a commodity decrease as the consumption of that commodity increase. Answer: Diminishes as the consumption of a product increases. 2. While purchasing a single commodity the consumer attains equilibrium when marginal utility of that particular commodity is equal to the price of that commodity. For example the consumer purchase good X. Then his equilibrium in case of good X is MUx~Px. But the consumer while purchasing more than one commodity he rearrange his consumption in such a way that the last rupee spent on each commodity gives equal marginal utility. For example if the consumer purchase good X and Y. his equilibrium condition is MUx/Px MUy/ PY = Mum Answer: last dollar spent is equal for all goods. 3. Diminishing returns occurs when average