I would appreciate help for the following questions :) 1. When the law of dimini
ID: 1189807 • Letter: I
Question
I would appreciate help for the following questions :)
1. When the law of diminishing returns takes place:
a) firms must add increasingly more input if they are to maintain the same extra amount of output.
b) firms must add decreasingly more input if they are to maintain the same extra amount of output.
c) more input must be added in order to increase output.
d) a frim must always try to add the same amount of input to the production process.
2. The cross-price-elasticity of demand for Tylenol and Aleve is likely to be:
a) greater than zero
b) less than zero
c) zero
d) infinity
3. The distinction between sunk and increment costs is most helpful in answering which question:
a) How many more people should be added to the production line?
b) What is the correct price to charge?
c) Should we begin to built a new factory?
d) Should we continue developing a new software application that we began last year?
4. The elasticity of demand for product is likely to be greater:
a) the smaller the number of substitude products available
b) the smaller the proportion of one's income spent on the product
c) if the product is a luxury rather than an absolute necessity
d) if the product is an imported good rather then a domestically produced good
5) For the given cost functions TC = 20,000 + 10Q, find MC and ATC:
a) ATC = $10 & MC = $(20,000/Q) + 10
b) MC = $10 & ATC = $(20,000/Q) + 10
c) ATC = $10,000 & MC = $10
d) none of the above
Explanation / Answer
(1) Option (a)
Law of diminishing return takes place when, as more & more input is used, output increases at a slower rate. So, to produce the same input, more & more units of input are to be used.
(2) Option (a)
Aleve & Tylenol are both pain relieving medicines and perfect substitutes. As price of one increases (decreases), quantity demanded for the other increases (decreases), so cross price elasticity is greater than 0.
(3) Option (c)
In evaluating a new expansion project, sunk cost and incremental costs are to be distinguished, since sunk costs are not considered into the project cash flow.
(4) Option (c)
For a luxury product, elasticity is much higher than for a necessity product, whose purchase cannot be curtailed below a specific level.
(5) Option (b)
ATC = TC / Q = (20,000 / Q) + 10
MC = dTC / dQ = 10