Question

1. Which of the following statements best describes the law of diminishing marginal utility?

Consumers will purchase more of a good at a lower price, ceteris paribus.

Consumers maximize total utility when the marginal utility per dollar spent is equal for all goods consumed.

Each successive unit of a good consumed yields less additional utility.

Consumers behave rationally when the price of a good equals the marginal utility of the good.

2. Assume the price elasticity of demand for Nike shoes is -1.5. If the company decreases the price of each pair of shoes, total revenue will:

Increase because more shoes will be sold.

Decrease because the company will be receiving less revenue per pair of shoes.

Increase because the percentage increase in the number sold is greater than the percentage decrease in the price.

Impossible to predict because we do not know the percentage change in price.

3. Diminishing returns to labor occur because of:

Inefficiency in the production process.

The use of inferior factors of production.

A rising ratio of labor to capital.

Lower opportunity costs of the factors of production.

Answer 1

1. Which of the following statements best describes the law of diminishing marginal utility?

Each successive unit of a good consumed yields less additional utility.(C) marginal utility derived from per additional unit keeps on decreasing.

2) Assume the price elasticity of demand for Nike shoes is -1.5. If the company decreases the price of each pair of shoes, total revenue will:

Increase because the percentage increase in the number sold is greater than the percentage decrease in the price(C) as a 1% decrease in price will cause a 1.5% increase in demand

3) Diminishing returns to labor occur because of:

A rising ratio of labor to capital(C) as the fixed input remains fixed whereas the firm employs more and more labor to it.