Economics Test (20 Marks)

The correct answer is "total product divided by the number of units of variable input." This is because average product is calculated by dividing the total product (the total output produced) by the number of units of variable input (the amount of input used to produce the output). This ratio gives us the average amount of output produced per unit of input.

The correct answer is Long run average cost curve. The long run average cost curve is also known as the planning curve because it provides a graphical representation of the average cost of production at different levels of output in the long run. It helps firms in making decisions regarding the optimal level of output and planning for the future. The curve shows the minimum average cost that can be achieved for each level of output when all inputs are variable.

The correct answer is that the services of a doctor are considered production. This is because a doctor provides a valuable service by diagnosing and treating patients, which is considered a productive activity in the economy. The other statements are not true. While humans can manipulate and transform matter, they cannot create it from nothing. The services of a housewife, although valuable, are not typically considered production in the same way as the services provided by a doctor.

The correct answer is AFC = ATC - AVC. This statement is true because average fixed cost (AFC) represents the fixed cost per unit of output, while average total cost (ATC) represents the total cost per unit of output. Average variable cost (AVC) represents the variable cost per unit of output. Therefore, when you subtract the average variable cost (AVC) from the average total cost (ATC), you are left with the average fixed cost (AFC).

When marginal costs are below average total costs, it means that the cost of producing one additional unit is lower than the average cost of producing all units. This suggests that the average total costs are falling because the additional units being produced are adding less to the overall cost. In other words, as more units are produced, the average cost per unit decreases, leading to a decrease in average total costs.

The average fixed cost curve is never 'U' shaped because it represents the fixed costs per unit of output. Fixed costs are constant regardless of the level of production, so the average fixed cost curve will continuously decrease as output increases. It will never reach a minimum point and start increasing again, which is characteristic of a 'U' shaped curve.

The concept of marginal cost is closely related to variable cost. Marginal cost refers to the additional cost incurred by producing one more unit of a good or service. Variable cost, on the other hand, is the cost that varies with the level of production. Since marginal cost represents the change in total cost when production increases by one unit, it is directly influenced by changes in variable cost. Therefore, the concept of marginal cost is closely connected to variable cost.

The laws of production refer to the relationship between inputs and outputs in the production process. Returns to scale, the law of diminishing returns to a factor, and the law of variable proportions are all concepts that explain how changes in input quantities affect output levels. However, the least cost combination of factors is not considered a law of production. It refers to the optimal combination of inputs that minimizes costs while achieving a desired level of output.

The statement "Savings can be influenced by government policies" is true because government policies can directly impact the incentives and opportunities for individuals to save. For example, tax policies that provide tax breaks or incentives for saving can encourage individuals to save more. Similarly, government policies that promote economic stability and growth can also indirectly influence savings by creating a favorable environment for individuals to save. Therefore, government policies play a significant role in shaping the level of savings in an economy.

Variable cost is the cost that changes in direct proportion to the level of production. As production increases, variable costs also increase because more resources and materials are needed. This is in contrast to fixed costs, which remain constant regardless of production levels. Average cost is the total cost divided by the quantity produced, and it can increase or decrease depending on the balance between fixed and variable costs. Marginal cost, on the other hand, represents the additional cost of producing one more unit and may not necessarily increase continuously with production.

If decreasing returns to scale are present, it means that as all inputs are increased by 10%, the increase in output will be less than 10%. This is because the decrease in efficiency or productivity resulting from the increased inputs will offset the potential increase in output. Therefore, the correct answer is that the output will increase by less than 10%.

The most important function of an entrepreneur is to innovate. Innovation is crucial for the success of any business as it allows entrepreneurs to come up with new ideas, products, or services that can meet the changing needs and demands of customers. By constantly innovating, entrepreneurs can stay ahead of the competition, improve efficiency, and create value for their customers. Innovation also drives economic growth and creates opportunities for new businesses to thrive. Therefore, the ability to innovate is essential for entrepreneurs to stay relevant and achieve long-term success.

The price of the firm's output is not a determinant of the firm's cost function because the cost function is determined by factors such as the production function, the price of labor, and taxes. The price of the firm's output may affect the firm's revenue and profits, but it does not directly impact the costs incurred by the firm in producing its goods or services. Therefore, it is not considered a determinant of the firm's cost function.

The average product of labor is a measure of the output produced per unit of labor input. When the marginal product of labor is equal to the average product of labor, it means that each additional unit of labor is adding the same amount of output as the average. This indicates that the resources are being efficiently utilized and the average product of labor is maximized. Therefore, the correct answer is "equals the average product of labor."

When a small factory expands its scale of operations, it is likely to experience economies of scale. This means that as the factory increases its production, it can benefit from lower average costs per unit of output. Economies of scale can be achieved through various factors such as increased specialization, improved technology, bulk purchasing, and efficient use of resources. These factors allow the factory to benefit from cost savings, increased productivity, and improved efficiency, leading to lower production costs and higher profitability in the long run.

The efficient scale of production refers to the quantity of output that minimizes the average total cost. This means that at the efficient scale, the production is done in such a way that the average cost per unit of output is minimized. This is important for businesses as it allows them to achieve maximum efficiency and profitability. By minimizing the average total cost, the business can produce goods or services at the lowest possible cost, which can help them stay competitive in the market and maximize their profits.

Diminishing marginal returns refers to the concept that as more units of a variable input are added to a fixed input, the additional output generated from each additional unit of the variable input will eventually start to decrease. This means that the marginal cost of producing each additional unit of output will increase. Therefore, the correct answer is increasing marginal costs.

The correct answer is the total product curve. Marginal product is defined as the additional output produced by adding one more unit of input. In the context of production, it is represented by the slope of the total product curve. The total product curve shows the relationship between the quantity of input used and the total output produced. By calculating the change in total product for each additional unit of input, we can determine the marginal product, which is reflected in the slope of the total product curve.

The correct answer is Diseconomies of scale. In the long run, as a firm expands its output, it may experience diseconomies of scale. This means that the cost per unit of production increases as the firm becomes larger. This could be due to various factors such as coordination problems, communication issues, or a decrease in efficiency as the firm becomes more complex. As a result, the long run average total cost curve slopes upward, indicating higher costs as output increases.

The fixed costs in this scenario are `RS350, which means that regardless of the level of output, the firm has to pay this amount. The average total cost is `RS150, which includes both fixed costs and variable costs. To find the variable costs, we subtract the fixed costs from the average total cost: `RS150 - `RS350 = `RS-200. Since negative costs do not make sense in this context, we can conclude that the variable costs make up `RS100 of the average total cost.