"The law of diminishing returns is the same as the decreasing returns to scale." Do you agree? Explain
What will be an ideal response?
The statement is incorrect. The law of diminishing returns states that as a firm uses more of a variable factor, with a given quantity of fixed factors, the marginal product of the variable factor eventually diminishes. In the long run all factors are variable, and decreasing returns to scale occurs when an increase in all factors by the same percentage results in a smaller percentage increase in output.
You might also like to view...
Marginal benefit refers to the additional benefit that your activity provides to you
Indicate whether the statement is true or false
Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry. Table 12-5 shows the firm's cost schedule
Table 12-5 Quantity (cases) Variable Cost Total Cost Marginal Cost Average Variable Cost Average Total Cost 0 $0 $76 1 30 106 2 50 3 134 4 140 5 160 6 114 7 150 8 190 9 316 Use the table to answer the following questions. a. Complete Table 12-5 by filling in the blank cells. b. Werner is selling in a perfectly competitive market at a price of $40. What is the profit maximizing or loss-minimizing output? c. Calculate the firm's profit or loss. d. Should the firm continue to produce in the short run? Explain. e. If the firm's fixed costs were $30 higher what would be the profit-maximizing output level in the short run? Indicate whether the output level will increase, decrease, or remain unchanged compared to your answer in b. f. Suppose fixed cost remains at $76. If the price of three-ring binders falls to $20 what is the profit-maximizing or loss-minimizing output? g. Calculate the profit or loss. Should the firm continue to produce in the short run? Explain your answer. h. Suppose the fixed cost remains at $76. What price corresponds to the shut-down point? i. Suppose the fixed cost remains at $76. What price corresponds to the break-even point?
The money supply is the amount of money:
A. that banks keep on hand. B. that banks keep on hand beyond the reserve requirement. C. available in the economy. D. available for banks to lend.
In the above table, what is the marginal physical product of worker 2?
A. 18 B. 9 C. 10 D. 11