Principles of Economics (4)

Which of the following statements is incorrect?

• The change in total product resulting from a one-unit increase in the quantity of labour is called marginal product.

• The total product curve shows how a firm's output changes when the quantity of labour changes.

• Diminishing marginal returns occur when the marginal product of a worker is less than the marginal product of the previous worker.

• Average product decreases initially, and eventually increases

Which of the following statements is incorrect?

• The production function is the relationship between the maximum output attainable and the quantities of both labour and capital.

• The long-run average cost (LRAC) curve traces the relationship between the lowest attainable ATC and output when both capital and labour inputs are fixed.

• The marginal cost curve intersects the average variable cost curve and the average total cost curve at their minimum points.

• Average cost initially decreases but increases later as output increases.

The law of diminishing marginal returns states:

• As a firm uses more of a variable factor of production, its average cost (AC) eventually decreases.

• As the size of a plant increases, marginal product (MP) eventually decreases.

• As a firm uses more of a variable factor of production, total product (TP) eventually decreases.

• As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the MP of the variable factor eventually decreases.

The marginal cost curve slopes upwards due to:

• Diminishing marginal returns.

• Diminishing marginal utility.

• Economic inefficiency.

• None of the above.

Which of the following is not a feature of perfectly competitive market?

• Many sellers and many buyers

• Close substitutes are not available

• Firms in perfect competition are price takers

• no barriers to entry and/or exit

Which of the following statements is incorrect?

• Perfect competition has horizontal demand curve, so that the demand for the firm's product is perfectly inelastic.

• All firms in perfectly competitive market operate at break-even point in the long run.

• A firm's break-even point occurs when average total cost (ATC) is at a minimum.

• A firm's shut-down point occurs when average variable cost (AVC) is at a minimum.

Which of the following statements is incorrect about perfect competition?

• A firm makes a loss equal to total fixed cost (TFC) at shut-down point.

• A firm’s loss is smaller than TFC if price is in between shut-down and break-even points.

• Firm’s MC curve passes through the minimum point of the AVC curve.

• At break-even point, firm’s MC becomes higher than the ATC.

Which of the following statements is incorrect about perfect competition?

• At prices below minimum AVC, a firm's supply curve runs along the Y-axis, while at prices above minimum AVC, a firm's supply curve is its MC curve.

• A firm may make an economic profit, or incur an economic loss or break-even in the SR.

• Entry of new firms increases supply, price and profit.

• Exit of existing firms decreases supply but increase price and profit.

Lin’s fortune cookies are identical to the fortune cookies made by many other firms and there is free entry in the fortune cookie market. Buyers and sellers are well informed about prices. In what type of market does Lin’s operate?

• perfect competition

• monopolistic competition

• oligopoly

• monopoly

Lin’s fortune cookies are identical to the fortune cookies made by many other firms and there is free entry in the fortune cookie market. Buyers and sellers are well informed about prices. What determines the price of fortune cookies?

• The supply and the demand on the market

• The marginal cost of Lin's production

• The average cost of Lin's production

• The maximum profit of Lin's production