QUESTION MULTIPLE CHOICE IV Choose the correct option A. In economics, \"the lon
ID: 1133144 • Letter: Q
Question
QUESTION MULTIPLE CHOICE IV
Choose the correct option
A. In economics, "the long run" is referred to as
[1] a period in which the amounts of labour are fixed.
[2] a period in which the amounts of capital are variable.
[3] a period in which the amounts of all factors of production can be changed.
[4] a period in which the amounts of all factors of production are fixed.
B. With regard to production, which of the following statements correctly explains diminishing returns?
[1] The marginal product of a factor is falling and negative.
[2] The marginal product of a factor is positive but falling.
[3] The marginal product of a factor is positive and rising.
[4] The marginal product of a factor is constant.
C. The law of diminishing marginal returns refers to the situation in which _______ eventually declines as more of the variable input is employed, given a certain amount of the fixed input.
[1] average revenue
[2] marginal product
[3] average cost
[4] marginal cost
D. What will happen if a shoe firm sells its shoes at a price lower than the opportunity cost of the inputs used in the production process?
[1] The firm will make both accounting and economic profits.
[2] The firm will make both accounting and economic losses.
[3] The firm will possibly make an economic profit and an accounting loss.
[4] The firm will possibly make an accounting profit but will make an economic loss.
E. If a perfectly competitive firm’s marginal cost is greater than its marginal revenue at its current level of production, what must the firm do to increase its profit?
[1] Reduce the price of its product.
[2] Decrease its output.
[3] Increase the price of its product.
[4] Increase its output
F. A profit-maximising firm sells its product for R300, but continues to produce even though it is making a loss. This suggests that
[1] the marginal cost is less than the price.
[2] the average fixed cost is less than the price.
[3] the average variable cost is less than the price.
[4] the average total cost is less than the price.
G. A perfectly competitive firm is described as a market with
[1] a few firms producing differentiated goods.
[2] a few buyers, many sellers and the production of differentiated goods.
[3] many buyers, many sellers and the production of homogenous goods.
[4] a large number of firms that each individually sets the price of their goods.
H. The determination of the price of a product in a perfectly competitive market is where the
[1] supply and demand curves intersect.
[2] quantity supplied and quantity demanded intersect.
[3] marginal cost equals the price of the product.
[4] marginal revenue equals the marginal cost.
I. At what price should a firm produce to maximise profits in a perfectly competitive market?
[1] where price equals marginal cost
[2] where price equals marginal revenue
[3] where price equals total revenue
[4] where price equals average revenue
J. When a perfectly competitive industry is in a long-run equilibrium, all the firms in the industry will
[1] earn an economic profit.
[2] make an economic loss.
[3] earn a normal profit.
[4] earn zero profits.
K. Which of the following correctly characterises a perfectly competitive labour market?
[1] a large number of firms and a large number of workers
[2] imperfect information
[3] employees and employers having individual control over the market wage rate
[4] very few skilled workers
L. Which of the following is true of the profit-maximising level of employment in a perfectly competitive labour market?
[1] The marginal revenue product equals the value of marginal product.
[2] The marginal revenue product equals the marginal cost of labour.
[3] The marginal product equals the marginal revenue product.
[4] The marginal product equals the marginal cost of labour.
Explanation / Answer
A) 3 is correct
In long run all the factors of production are variable. There is no fixed input.
B) 2 is correct
Under diminishing returns, marginal product is falling but is still positive.
C) 2 is correct
Diminishing returns is a situation where marginal product starts falling.
D) 4 is correct
Economic profit= accounting profit - opportunity cost
Thus when price is lower than opportunity cost, a firm may make accounting profit but for sure make economic loss.