introduction to micro economics section 3 MCQ Questions & Answers Detailed Explanation

Answer: (a)

The average cost is the total cost per unit of output. Marginal cost, on the other hand, is the addition to the total cost by producing one more unit of output.

Economies of scale are said to exist if an additional unit of output can be produced for less than the average of all previous units— that is, if long-run marginal cost is below long-run average cost, so the latter is falling.

Conversely, there may be levels of production where marginal cost is higher than average cost, and the average cost is an increasing function of output.

Answer: (a)

As labour productivity increases, the production function shifts up and simultaneously the labour demand curve shifts out and right. At a given real wage, more workers are hired and output increases.

Similarly, as the capital stock increases, the production function shifts up and simultaneously the labour demand curve shifts out and right.

Answer: (b)

In economics, a cost curve is a graph of the costs of production as a function of the total quantity produced. Both the Short-run average total cost curve (SRAC) and Long-run average cost curve (LRAC) curves are typically expressed as U-shaped.

However, the shapes of the curves are not due to the same factors.

Answer: (c)

Economic rent is the revenue that can be earned from the land or other natural resource for which there is a fixed supply — as economists like to say, the supply is perfectly inelastic.

Because the supply is perfectly inelastic, the amount of its supply does not depend on any income that the resource can produce.

Answer: (d)

The theory of Economic problems states that there is scarcity, or that the finite resources available are insufficient to satisfy all human wants and needs.

The problem then becomes how to determine what is to be produced and how the factors of production (such as capital and labour) are to be allocated.

In short, the economic problem is the choice one must make, arising out of limited means and unlimited wants.