Set#1:Midterm Exam For Open University Malysia Students...Albrady

Feedback: Both the economic perspective and the scientific method are fundamental to the study of economics.

The monthly opportunity cost of the building is best measured as the rent the firm could earn if it rented the building to another firm. This is because by using the building for office space, the firm is forgoing the potential rental income it could have earned if it had leased the building to another firm. This represents the opportunity cost of using the building for its own workers.

Feedback: The economic perspective assumes scarcity of resources relative to human wants, assumes that individuals rationally pursue their self-interest, and assumes that individuals compare costs and benefits at the margin. These assumptions hold in both the long term and the short term.

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Feedback: Microeconomics is the study of specific economic units such as particular firms, households, or markets.

Feedback: Average product is equal to the number of units of output divided by the number of workers. When three workers are hired, average product is equal to 48 / 3 = 16 units per worker. For comparison, average product is 13 when 2 workers are hired and 15 when 4 workers are hired.

If the Post Office faces a section of its demand curve that is elastic, it means that a small change in price will result in a relatively larger change in quantity demanded. In this case, when the price of mailing a first class letter increased by 3%, it is expected that the quantity demanded will decrease by more than 3%. As a result, the revenues of the Post Office will decrease.

The long-run average cost curve will be horizontal as long as α + β = 1. This means that the sum of the exponents for labor (α) and capital (β) in the production function is equal to 1. This condition indicates constant returns to scale, where an increase in inputs leads to an equal increase in output. In this case, the average cost of production remains constant regardless of the scale of production.

The constant marginal revenue of $7.50 indicates that the demand curve for Aabced, Inc. is perfectly elastic or infinite. This means that no matter how much the company sells, the price remains constant at $7.50. In other words, the company can increase or decrease its quantity of sales without affecting the price. This suggests that the company operates in a highly competitive market where buyers are very sensitive to price changes and have many alternatives to choose from.

If a firm doubles all inputs and output more than doubles, it indicates increasing returns to scale. This means that as the firm increases its scale of production by doubling all inputs, the output increases at a greater rate. In other words, the firm experiences economies of scale, where the cost per unit of output decreases as the firm expands its production. This can be due to various factors such as specialization, better utilization of resources, and improved efficiency. Overall, increasing returns to scale suggest that the firm can achieve higher levels of output with proportionately lower costs.

If Connie Mix claims that Vidgets is an inferior good, it means that he believes that the demand for Vidgets decreases as income increases. This indicates a negative relationship between income and demand, which is represented by an income elasticity less than zero.

Feedback: Rational self-interest and comparing costs and benefits at the margin are the key features of the economic perspective.

The production function q = L0.4K0.4 indicates that capital and labor are substitutable inputs, as changing the quantities of either input can affect the level of output. The fact that the production function has exponents less than 1 (0.4) for both capital and labor suggests that there are decreasing returns to scale, meaning that as both inputs are increased, the rate of increase in output will eventually diminish. Additionally, the marginal productivity of labor falls as labor increases in the short-run, indicating diminishing marginal returns to labor. Therefore, all of the statements are true.

Feedback: Both S2 and D2 show an increase in quantity at each possible price. The increase in supply has more than offset the increase in demand, however. Equilibrium has moved from point J to point L, reflecting a drop in the equilibrium price.

The marginal product is calculated by finding the change in output when an additional unit of input is added. In this case, the average product for the 7th worker is given as 14, which means that the total output with 7 workers is 14 times the output with 6 workers. Therefore, the marginal product of the 7th worker is 14 units. However, this is not one of the options provided. Since none of the options match the given information, it is not possible to determine the correct answer.

Feedback: The range from B to C exhibits diseconomies of scale, which is caused primarily by the increasing difficulty of managing and coordinating the firm as it grows.

The correct answer is "Total benefit=$40 & MC= $11." This is because the total benefit of three units is $24, and the marginal cost of the fourth unit is $11.

If both the demand curve and supply curve move to the left, it indicates a decrease in both demand and supply. This would result in a decrease in the quantity of the product being exchanged in the market. However, the change in price cannot be predicted because it depends on the magnitude of the shifts in the demand and supply curves.

At all levels of production, the statement "MC = AVC" is true. MC (Marginal Cost) represents the additional cost of producing one more unit, while AVC (Average Variable Cost) represents the cost per unit of variable inputs. When MC is equal to AVC, it means that the additional cost of producing one more unit is equal to the average cost per unit of variable inputs. This indicates that the cost of producing each additional unit is equal to the average cost of the variable inputs used to produce that unit.

Feedback: The total cost of 4 units of output is $210 = $50 (fixed cost) + $160 (total variable cost.) To find average total cost, divide this by the number of units of output: $210 / 4 = $52.50 per unit.

The concept of "returns to scale" refers to the relationship between the inputs used in production and the resulting output. In the long-run, a firm has the flexibility to adjust all of its inputs, such as labor and capital, in order to maximize its output. This means that it can increase or decrease the scale of production to achieve higher or lower levels of output. In contrast, in the short-run, at least one input is fixed and cannot be adjusted. Therefore, the concept of returns to scale only applies in the long-run, where all inputs can be varied.

In this scenario, the short-run production function is q = 10 * L, where q represents the quantity of output and L represents the quantity of labor. The wage rate is given as $10 per unit of labor. Marginal cost (MC) represents the additional cost incurred by producing one more unit of output. Since the wage rate is $10 per unit of labor and the production function is q = 10 * L, it implies that the cost of producing one more unit of output is equal to the wage rate. Therefore, MC is equal to 1.

Feedback: The demand curve is the relationship between price and quantity demanded, all else equal. A change in price changes quantity demanded, but does not shift the demand curve. One explanation for the inverse relationship between price and quantity demanded along the curve is that a higher price reduces the real incomes of buyers. For normal goods, this drop in real income will reduce desired purchases.

This means at equilibrium price

Feedback: Accounting profits are revenues (70,000 times $20 equals $1,400,000) minus explicit costs. Economic profit is accounting profit minus implicit costs.

A decline in the price of cheep will decrease the demand for beef because consumers may choose to buy more of the cheaper alternative. Additionally, it will decrease the quantity supplied of beef because producers may find it less profitable to produce beef at a lower price. Therefore, both the demand and quantity supplied of beef will decrease as a result of the decline in the price of cheep.