II. True or False and Explain. 5 Points Each, 25 Points. Do any FIVE of the foll
ID: 1129954 • Letter: I
Question
II. True or False and Explain. 5 Points Each, 25 Points. Do any FIVE of the following. )Constant returns to scale occurs when firms add a variable factor of production to a fixed factor of production, decreasing average total costs. 2)Average fixed costs rise as output increases because the productivity of labor decreases 3)The opportunity cost of starting a new business is giving up one's free time 4)lf marginal cost is rising, then average variable cost and average total cost must be rising as well 5)A firm in a competitive industry is assumed to set their price to cover costs and a normal profit. mple of price discrimination is when a law firm gives its large, corporate customers better service than its smaller clientsExplanation / Answer
Ans:
1) True
In case of constant return to scale the increase in the inputs will lead to a equivalent increase in the output and hence the average total cost decreases.
2) False
Average fixed cost = fixed cost / Quantity
Average fixed cost decreases as output increases because the same amount of fixed costs is being spread over total output.
3) False
The opportunity cost of starting a business it the salary forgone which can be earned instead of starting a business.
4) True
If marginal cost is greater than average variable cost, then average variable cost is rising and since average variable cost is rising average total cost will also rise.
5) False
firms in competitive industry are price takers and hence they sell their products at the prevailing market price.
6) False
Price discrimination means selling the same product at different prices to different customers, in order to maximize profit.