A firm experiences diminishing marginal returns because:
A. all factors of production are variable.
B. people "learn by doing."
C. all factors of production are fixed.
D. at least one factor of production is fixed.
Answer: D
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Netflix introduced DVD rentals via US Mail whereby customers do not have to leave their home to rent movies. They also introduced the concept of no-late fees. Netflix has enjoyed strong profits over the last few years
However, what does economic theory tell us should happen to these profits in the long run and why?
Variables measured at current market prices are nominal, rather than real. In what sense are nominal variables unreal?
What will be an ideal response?
In the cigarette industry either R. J. Reynolds or Phillip Morris, for a time, raised prices twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Economists call this
a. predatory pricing. b. a price war. c. price leadership. d. sales maximization.
In the long run, a year-long drought that destroys most of the summer's wheat crops causes permanently:
A. higher prices. B. lower prices. C. lower output. D. None of these is true.