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4 Economics Questions...

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Just answers the 4 questions below using some economic concepts.

1.) give an example that depicts the law of diminishing marginal returns. Please do not use the example for the questions below, use something else.

2.)Please give comment and what you think??? I am going to use labor examples from my old profession. I owned a landscape company before I joined the service. I initially thought that if I could just hire more guys I could get all of my jobs done faster. This wasn't always the case.

Dealing with a specific job case and labor productivity as the diminishing product. I was installing sod lawn there were several stacks of sod and an area of yard that needed to be laid. I had stacks of sod on palletsbut could only uncover could only uncover one at a time or the sod would dry out. I figured that more labor would help me out. Instead I had guy's stacking up waiting on each other to take a piece of sod and lay it. I was about one laborer over on my estimate. If I would have removed one laborer there would have been no need for pause and we could have continualy moved from sod pile to ground without interuption.

I noticed when we backed up at the pile that once a person stopped to pause their mind would also wonder and loose focus on the job. When laying sod, time is very important. At the end of the day I relized I was paying out 100 dollars to a person I never needed. The law of diminishing returns had snuck up on me.

I also saw this in the Military. We sometimes had more people than work, sometimes. In the military if you don't need everyone you try and find something for them too do it's not the most efficient organization by far. My supervisors would put 4 guys on one vehicle repair but most of the repairs were under the hood in the same area. The end result was people chatting it up and to many hands in a small place which ended up in wasted man hours.Two people would have been more than sufficient to complete the job in the same amount of time. Although in the circumstance of the military we have to be prepared for when we do need all those hands....It is better to have more their than not enough. But for that specific example the law of diminishing return had the best of us and the more we added to it the less productive it became.

3.)Please give comment and what you think??? An example of diminishing marginal returns would be salespeople in a clothing store.

If you are an owner of this clothing store, obviously you would want enough staff to operate the store and take care of its customers. Having enough employees would mean shorter lines, more people to assist you in finding a specific article of clothing, people manning the fitting room, people putting clothes away, etc..

If this same proprietor decided to add more staff (beyond what was already determined as enough based on his level of business and # of customers, etc.), it would no longer be beneficial for him because this person would cost more in wages than the amount of work this person could perform. It then becomes a situation where the marginal returns start to diminish.

4.)Please give comment and what you think??? Businesses are in business to make a profit. If selling one tire causes a profit to be made, then why not make and sell millions and millions of them? As overhead increases and more employees are brought in, the costs of each of those tires increases. It can get to a point where it is no longer profitable enough (per tire) to stay in business. That is why there are more thana few tire manufacturers. No one manufacturer could supply all the tires. They would be too expensive.

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Economics problems- 35 Multiple choice questions on economics

Please see the attached file for full problem description.

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1. In the long run, a firm is said to be experiencing increasing returns to scale if a 10 percent increase in inputs results in :
A. an increase in output from 100 to 120.
B. a decrease in output from 100 to 90.
C. an increase in output from 100 to 105.
D. a decrease in output from 100 to 85.

2. MC increases because
a. MC naturally increases as firm nears capacity.
b. labor is paid overtime wages when volume increases.
c. in the short run, MC always increases.
d. the law of diminishing returns takes effect.

3. Which of the following relationships help determine the optimal amount of variable input (labor) in the short run?
a. Marginal Product = Marginal Cost
b. Average Product = Marginal Product
c. Marginal Product = 0
d. Marginal Revenue Product = Marginal Labor Cost

4. A company can ship its product by train but there is a chance that product may be damaged while in transit. The dollar cost and the probability of damage and no-damage are as follows:
Dollar cost of shipping Probability
Damage $5000 .5
No damage $4000 .5
The expected value of the cost of shipping by train is
a. $5400
b. $5000
c. $4500
d. $5200
e. $4040

5. The main difference between the price-quantity graph of a perfectly competitive firm and a monopoly is

a. that the competitive firm's demand curve is horizontal, while that of the monopoly is downward sloping.
b. that a monopoly always earns an economic profit while a competitive company always earns only normal profit.
c. that a monopoly maximizes its profit when marginal revenue is greater than marginal cost.
d. that a monopoly does not incur increasing marginal cost.

6. Which of the following cost relationships is not true?
A. AFC = AC - MC
B TVC = TC - TFC
C. the change in TVC/the change in Q = MC
D. the change in TC/the change in Q = MC

7. Which of the following conditions would definitely cause a perfectly competitive company to shut down in the short run?
A. P < MC
C. P = MC < AC
C. P < AVC
D. P = MR

8. The demand curve which assumes that competitors will follow price decreases but not price increases is called
A. an industry demand curve.
B. an inelastic demand curve.
C. a kinked demand curve.
D. a competitive demand curve.

9. The existence of a kinked demand curve under oligopoly conditions may result in
A. price flexibility.
B. price rigidity.
C. competitive pricing.
D. none of the above.

10. If firms are earning economic profit in a monopolistically competitive market, which of the following is most likely to happen in the long run?
A. some firms will leave the market
B. firms will join together to keep others from entering
C new firms will enter the market, thereby eliminating the economic profit
D. firms will continue to earn economic profit

11. A monopoly will usually produce
A. where its demand curve is inelastic.
B. where its demand curve is elastic.
C. where its demand curve is either elastic or inelastic.
D. only when its demand curve is perfectly inelastic.

12. Which of the following indicate when Stage I ends and Stage II begins in the short run production?
A. When AP = 0
B. When MP = 0
C. When MP = AP
D. When MP starts to diminish

13. Which of the following statements best represents a difference between short-run and long-run cost?
A. Less than one year is considered the short run; more than one year the long run.
B. there are no fixed costs in the long run.
C. in the short run labor must always be considered the variable input and capital the fixed input.
D. all of the above are true.

14. The following information is to be used in answering the questions below.

Company A sells its product for $4 per unit, has variable costs per unit of $2.50, and its fixed cost is $50,000 per period.

Company B sells a product similar to A's for $3.80 per unit, has variable costs per unit of $1.80, and its fixed cost is $80,000 per period.

If production reaches 70,000 units per period, then
A. A's profit will be higher than B's.
B. B's profit will be higher than A's.
C. both will earn the same profit.
D. cannot tell which will make the higher profit.

15. Which of the following relationships is correct?
A. A. When marginal product starts to decrease, marginal cost starts to decrease.
B. When marginal cost starts to increase, average cost starts to increase.
C. When marginal cost starts to increase, average variable cost starts to increase.
D. When marginal product starts to decrease, marginal cost starts to increase.

16. Average fixed cost is:
A. AC minus AVC.
B. TC divided by Q.
C. AVC minus MC.
D. TC minus TVC.

17. The four-firm concentration ratio:
A. indicates the total profitability among the top four firms in an industry.
B. is an indicator of the degree of monopolistic competition.
C. indicates the presence and intensity of an oligopoly market.
D. is used by the government as a basis for anti-trust cases.

18. The following is not one of the strengths of the Cobb-Douglas production function:
A. both marginal product and returns to scale can be estimated from it.
B. it can be converted into a linear function for ease of calculation.
C. it shows a production function passing through increasing returns to constant returns and then to decreasing returns.
D. the sum of the exponents indicates whether returns to scale are increasing, constant or decreasing.

19. When a company is faced by a kinked demand curve, the marginal revenue curve
A. will be upward sloping.
B. will be horizontal.
C. will always be zero at the quantity produced.
D. will be discontinuous.

20. Which of the following is not true about the law of diminishing returns?
A It is a short run phenomenon.
B. t refers to diminishing marginal product.
C. It will have an impact on the firm's marginal cost.
D.It divides Stage I and II of the production process.
E. All of the above are true.

21. Which of the following is a reason for economies of scale?
A. fixed costs are spread out as volume increases.
B. the law of diminishing returns does not take effect.
C. input productivity increases as a result of greater specialization.
D. there is greater savings in transportation costs.

22. In finance, risk is most commonly measured by
A. the probability distribution
B. the standard deviation
C. the average deviation
D. the square root of standard deviation

23. When comparing two projects with different returns and different standard deviations, the risk measure which can be used is called the
A. variance
B. certainty equivalent
C. coefficient of correlation
D. coefficient of variation
24. The company Blue Ribbon has estimated expected cash flows for 1996 to be as follows:
Probability Cash Flow
.10 120,000
.15 140,000
.5 150,000
.15 180,000
.10 210,000
The expected value of cash flow is
A $156,ooo
B. $800,000
C. $160,000

25. If Coefficient of Output Elasticity (E) is greater than 1, it means that a 10% increase in all inputs will lead to ____________________________
A. a 20% increase of output
B. some magnitude of output either increase or decrease which is impossible to know unless we know the production function
C. atmost 10% increase in output
D. a decrease in output by 5%

26. The following production function

exhibits:
A. increasing returns to scale
B. constant returns to scale
C. decreasing returns to scale
D impossible to determine

27. In a perfectly competitive industry, if P (price) is greater than ATC(average total cost), in the long run:
A. firms would leave the industry to seek higher returns elsewhere
B. new firms will enter the industry resulting in lower price and elimination of excess profit
C. price will increase as the industry achieves long run equilibrium
D. none of the above

28. In which of the markets will the firm be facing the most elastic demand curve?
A. Perfect competition
B Monopoly
C. Monopolistic Competition
D. Oligopoly

29. The Herfindahl -hirschman Index provides
A. nfo regading price interaction of oligopolistic firms
B. info regarding concentration of market share by the larger companies in an industry
C. info regarding price elasticity of demand
D. info regarding cost side of oligopolistic firms

30. A monopolist's demand, revenue and cost curves are given as:
Demand: Q d = 1000 -2P
Total Cost: TC = 5000 + 50Q
Marginal Revenue: MR = 500 -Q
Marginal Cost: MC = 50
The profit maximizing output for the monopolist is:
A. 500 units
B. 450 units
C. 1000 units
D. impossible to determine

31. Given the total cost function

the fixed cost per unit produced (Average Fixed Cost) when Q = 10 is given by:
A. $1000
B. $20
C. $13
D. $100
E. none of the above

32.

Refer to the above diagram for a monopolistically competitive firm. Long-run equilibrium output will be:
A. greater than OE.
B. OE.
C. OD.
D. OC

33. Suppose the Herfindahl Indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that:
A. market power is greatest in industry A.
B. market power is greatest in industry B.
C. market power is greatest in industry C.
D. industry A is more monopolistic than industry C.

34. Monopolistically competitive firms:
A. realize normal profits in the short run but losses in the long run.
B. incur persistent losses in both the short run and long run.
C. may realize either profits or losses in the short run, but realize normal profits in the long run.
D. persistently realize economic profits in both the short run and long run.

35. Given the total cost function of a firm as TC = 100 +60Q +3Q^2,

The functional form of average variable cost (AVC) is:
A. AVC = 60Q +3Q^2
B. AVC = 100/Q + 60 +3Q
C. AVC = 60 + 3Q

36. Given production function
Q = 7X2 </SUP - .2X3
the marginal production at X =10 is
A. 70
B. 80
C. 90
D. 100
E. none of the above

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