The larger a firm, the lower its cost of production This statement explains the?
Law of diminishing marginal returns
Concept of economies of scale
Law of comparative cost advantage
Theory of division of labour
Correct answer is B
Economies of Scale refer to the cost advantage enjoyed by a firm when it increases its level of output. An increase in the level of output indicates the growth and expansion of a firm. This happens when costs are spread over a larger number of goods.
A firm average cost decreases in the longrun because?
Increasing returns to scale
Diminishing average returns
Decreasing marginal returns
Decreasing average fixed cost
Correct answer is A
In the long run, all the factors of production are variable and the cost is accumulated as a result of changes in the various levels of production. Average cost decreases in the longrun due to increasing economies of scale. This refers to the situation where, as the quantity of output goes up, the cost per unit reduces.
A price floor is usually fixed
At the equilibrium and causes shortage
Above the equilibrium and causes shortage
Below the equilibrium and causes shortage
Above the equilibrium and causes surplus
Correct answer is D
A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product, good, commodity, or service.
A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage--the minimum price that can be payed for labor.
For a price floor to be effective, it must be set above the equilibrium price.
If the marginal utility of a commodity is equal to its price then
The consumer is in equilibrium
More of the commodity can be consumed
Total utility is also equal to its price
The market is not in equilibrium
Correct answer is C
The price a consumer is willing to pay for a good depends on his marginal utility, the marginal utility declines with each additional unit of consumption, according to the law of diminishing marginal utility. Therefore, the price is equal to the marginal utility
A supply curve parallel to the X- axis indicates?
Fairly elastic supply
Infinitely elastic supply
Fairly inelastic supply
Fairly inelastic supply
Correct answer is B
Infinitely elastic supply, by definition, means that any decrease in the product price would immediately cause the supply to shift to zero.