Choose whether each statement is true. false, or uncertain. and explain your cho

Question

Choose whether each statement is true. false, or uncertain. and explain your choice. lf a production function has a positive marginal product for all factors of production, then the production function must have increasing returns to scale overall. A firm may keep operating, even if it will make a loss when comparing its total costs to its total revenue. Julie has a photography business that has revenues of $400/week. She also works part time its a waitress, where she makes $300/week. She employs a manager to arrange her photography shoots for $200/week. However, thinking carefully. Julie will do better if she quits her waitressing job and fires her manager. This will give her revenues from her photography business of $400/week (with no labor costs), which is better than the $300/week that she was making as a waitress. At the optimal level of production and inputs for a firm. marginal cost is always strictly greater than average total cost.

Explanation / Answer

a) False: A positive marginal product means a positive returns to scale, it can be incrasing , decreasing or constant returns, it the marginal product is negative it will give negative returns to scale. b) False, based on TC and TR analysis we can know the level of profit or loss, and will stop output at oprations when the firm is incurring losses. but a detailed analysis and profit maximiztion, TR and TC is not sufficient, by looking at the profit margin based on TR-TC analysis we cannot say wethaer the frim is operating at profit maximizing output level, for this we have to take the margianl revenue and marginal cost into consideration. When MR=MC, a firm maximizes its profit. c) False, When working as a waitress she earns $300, and on photography she earns $400, total revenu is $700. And total costs incurred are, wages to manager for phtography business of $200. Profits= TR- TC           = $700 - $200= $ 500 If she quits her job and concentrates on photography business, whe will be saving $200 on wages. So TR= $400 ( from photography) TC= 0 ( no wages paid) Profit= $400 So, she gains more when she is working as a waitress. In the above calculation we considered only accounting profits, if we consider the economic profits the loss will be high. Total revenue= $400 Total cost: Explicit costs= $0 Implicit costs= $300 ( opportunity lost to earn while working as a waitress) Total Cost= 0+300= $300 Economic profit= $400 - $300                           =$100 d) False. Optimal level of output is produced when MR=MC, this may not always be more than the ATC, an incompetent firm may face an ATC higher than the MC. And in some instances a monopolist chanrging a higher price still runs at a profit, where the MC is lower than the ATC.

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