Q1 The bowed shape of the production possibilities curve explains: a) the law of

Question

Q1 The bowed shape of the production possibilities curve explains: a) the law of increasing marginal cost. b) that production is inefficient. c) that production is unattainable. d) that demand is relatively inelastic.

Q2 A firm is employing 10 units of L and 5 units of K to produce 20 tables. L costs $1 per unit and K 0.5 per unit. For the quantities of inputs employed, MP =0. 2 and MP = 0.5. In this situation: a) Output can be increased by using more K and less L, with no extra cost b) Both inputs should be used in equal proportions c) The firm is producing at its maximum d) Output can be increased by using more L and less K, with no extra cost

Q3 Students choose to study because the marginal benefit is greater than the: a) expected cost b) marginal revenue c) total cost d) marginal cost

Explanation / Answer

1.) The bowed shape of the production possibilities curve explains  the law of increasing marginal cost.If more of one good is produced,we have to sacrifice more of other good production .So correct option is a.

2)L=10, K=5, Q=20,w=1 ,v=0.5

MPL=0.2,MPK=0.5

MPL/W=0.2/1=0.2

MPK/V=0.5/0.5=1

0.2>1,so Output can be increased by using more K and less L, with no extra cost.

so correct option is a.

3) Students choose to study because the marginal benefit is greater than the marginal cost.It implies change in benefit is more than change in cost.So correct option is d.

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