QUESTION 1 At the output level where average variable cost i

QUESTION 1

At the output level where average variable cost is at a minimum,

average product is at a maximum.

marginal product is at a maximum.

average product is at a minimum.

marginal product is at a minimum.

QUESTION 2

The marginal cost (MC) curve intersects the

TC and TVC curves at their maximum points.

AVC and AFC curves at their minimum points.

ATC and AVC curves at their minimum points.

ATC and AVC curves at their maximum points.

QUESTION 3

As soon as diminishing returns set in, a firm’s marginal

product increases.

cost decreases.

cost increases.

revenue decreases.

QUESTION 4

In the long run, inputs

that were fixed in the short run will remain fixed.

that were variable in the short run become fixed.

that were fixed in the short run become variable.

that are seldom used will be used.

QUESTION 5

The long run refers to a time period

of two years or more.

when there is at least one variable input.

in which all inputs are variable.

of at least 10 years.

QUESTION 6

If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing a quantity of output where

average total cost is less than marginal cost.

price is greater than marginal cost.

marginal cost is greater than marginal revenue.

average total cost is greater than marginal cost.

QUESTION 7

If a profit-maximizing firm in a perfectly competitive market is making an economic profit, then it must be producing a quantity of output where

marginal cost is greater than marginal revenue.

marginal cost is greater than average total cost.

price is greater than marginal cost.

price is greater than marginal revenue.

	a.	average product is at a maximum.
	b.	marginal product is at a maximum.
	c.	average product is at a minimum.
	d.	marginal product is at a minimum.

Solution

1.

Where the average variable cost is at its minimum level, corresponding to this the marginal product of labor is maximum.

Hence option B is the correct answer.

2.

Since the marginal cost curve cuts average variable cost and average total cost at its minimum level.

Hence option c is the correct answer.

3.

When there is diminishing returns, then total product increase at decreasing rate. In this situation the marginal cost increases.

Hence option c is the correct answer.

4. In short run there are two kinds of inputs, fixed cost which remains unchanged in the short run. But variable cost change with the change in the output level.

In the long run, all factors of production becomes variable. It means the factors which were fixed in the short run, now those factors are variable in the long run.

Hence option c is the correct answer.