Question

QUESTION 4 Assuming each unit of variable inputs cost the same, marginal cost will increase as output increases if O Variable cost is rising. Total cost is rising Marginal physical product is rising. Marginal physical product is falling QUESTION 5 In the short run, when a firm produces zero output, total cost equals: O fixed costs. variable costs O zero. O average total cost. QUESTIO Economic cost includes: O Only the value of resources used to produce a good for which a monetary payment is made The value of all resources used to produce a good. O Only implicit costs. Only explicit costs. QUESTION 7 If an industry exhibits economies of scale: O Factory size makes no difference, lowest cost production will always be achieved It would be better to produce at several small factories It would be better to produce at one large factory O minimum ATC is higher at a large factory than at a small one. QUESTIONS The best measure of the economic cost of any activity is The amount you would have to pay to do it. O The economics cost plus the accounting cost. The most valuable opportunity you give up to do it O Only explicit costs. QUESTION 9 Explain the Law of Diminishing Marginal Returns. Why does it happen?

Answer 1

4.

As it has been given that each unit of variable input cost the same, marginal cost will increase as output increases if marginal physical product is falling.

The marginal physical product can be defined as the additional output produced by the additional labor.

The marginal cost is the additional cost which arises by producing an additional unit of output.

So when marginal physical product is falling and variable unit cost is same, then additional variable unit is adding less output when output is increasing. It means additional cost of hiring variable unit is increasing.

Hence option fourth is the correct answer.

5.

Fixed cost is that which does not vary with the change in the output level.

Hence when firm produces 0 units of output, then total cost will be equal tot fixed cost.

Hence option first is the correct answer.

6.

Economic cost includes only the value of resources used to produce a good for which a monetary payment is made.

Hence option first is the correct answer.

7.

The economies of scale exist when long-run Average total cost continues to decrease with the increase in the output level.

ATC=AFC+AVC

If an industry exhibits economies of scale, then it would be better to produce at one large factory.

This is because in a large factory the cost per unit decrease when more output is produced.

Hence option third is the correct answer.