Firms and its decision

What is the main objective of firms?

• Maximize profits

• Maximize market share

• Maximize revenue

• Maximize costs

Answer explanation

The main objective of firms is to maximize profits, making it the correct choice among the options provided.

What is the difference between accounting profit and economic profit?

• Accounting profit includes implicit costs, economic profit does not

• Accounting profit includes explicit costs, economic profit does not

• Accounting profit includes both explicit and implicit costs, economic profit includes only explicit costs

• Accounting profit includes only explicit costs, economic profit includes both explicit and implicit costs

Answer explanation

Accounting profit includes both explicit and implicit costs, economic profit includes only explicit costs

What is the short-run cost that remains constant regardless of the level of output?

• Total Fixed Cost

• Average Variable Cost

• Total Variable Cost

• Average Fixed Cost

Answer explanation

Total Fixed Cost is the short-run cost that remains constant regardless of the level of output, as it includes costs that do not vary with production levels.

What is the output level at which the long-run average cost reaches its minimum called?

• Economies of Scale

• Optimal Production Level

• Maximum Efficient Scale

• Minimum Efficient Scale

Answer explanation

The output level at which the long-run average cost reaches its minimum is called the Minimum Efficient Scale.

What is the shape of the Long-run Average Total Cost (LRAC) curve?

• L-shaped

• V-shaped

• U-shaped

• W-shaped

Answer explanation

The shape of the Long-run Average Total Cost (LRAC) curve is U-shaped, indicating that costs initially decrease, reach a minimum point, and then increase as output expands.

What is the concept that refers to the rise in productivity as a firm's scale of production increases?

• Diseconomies of Scope

• Diseconomies of Scale

• Economies of Scale

• Economies of Scope

Answer explanation

Economies of Scale refer to the rise in productivity as a firm's scale of production increases, leading to lower average costs of production.

What is one advantage of firms expanding their scale of production?

• Increase in average cost of production

• Decrease in average cost of production

• No impact on average cost of production

• Increase in competition

Answer explanation

One advantage of firms expanding their scale of production is a decrease in average cost of production due to economies of scale.

What is an example of external economies of scale?

• Shortage of industry-specific resources

• Increase in average cost of production

• Availability of shared resources

• Decrease in market share

Answer explanation

An example of external economies of scale is the availability of shared resources, where multiple firms benefit from using common resources, leading to cost savings and efficiency improvements.

Why might firms choose to remain small in size?

• To enjoy economies of scale

• To increase market share

• To cater to niche markets

• To access more resources

Answer explanation

Firms might choose to remain small in size to access more resources, as larger firms may face challenges in efficiently utilizing resources.

What is the relationship between Economies of Scale and Law of Diminishing Returns?

• They are unrelated concepts

• Economies of Scale lead to decreasing returns to scale

• Economies of Scale lead to constant returns to scale

• Economies of Scale lead to increasing returns to scale

Answer explanation

Economies of Scale lead to decreasing returns to scale