Define the production function. Discuss why the production function exhibits diminishing returns
What will be an ideal response?
The production function is the relationship that shows the maximum quantity of real GDP that can be produced as the quantity of labor employed changes and all other influences on production remain the same. The production function exhibits diminishing returns because the quantity of capital (and other resources) is fixed. As more labor is hired, the extra output produced decreases because the extra workers have less capital with which to work. As a result, the additional workers cannot produce as much additional output as did the previously hired workers.
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Which of the following conditions distinguishes the monopolistic competitor from the monopolist?
a. profit-maximizing rule b. downward slope of demand curve c. entry of rivals d. short-run economic profits
When the rate of growth of per capita income of poorer countries is higher than that of richer countries, it leads to economic convergence
a. True b. False Indicate whether the statement is true or false
Each firm in a monopolistically competitive market
a. earns both short-run and long-run profits. b. faces a downward-sloping demand curve. c. cannot earn economic profit in the short run. d. sets price equal to marginal cost.