Assignment Task
Question 1
If a firm has a non-linear expansion path then which of the following statements is correct?
A. If the production function exhibits decreasing return to scale, then the firm must experience diseconomies of scale in the long run.
B. If the production function exhibits increasing return to scale, then the firm must experience economies of scale in the long run.
C. If the production function exhibits constant return to scale, then the firm must have a constant average cost curve in the long run.
D. None of the above.
Question 2
A linear expansion path indicates that:
A. the underlying production function must exhibit constant return to scale.
B. the firm must be operating at a constant average cost in the long run.
C. the firm’s cost minimizing input bundles for different output levels share the same capital-labour ratio.
D. the firm will always hire the same amount of labour and capital at all of its cost minimizing input bundles.
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For given prices of labour and capital, which of the following production functions will have a linear expansion path?
A. Cobb-Douglas production function
B. Fixed proportions (perfect complements) production function
C. Perfect substitutes production function
D. All of the above
Question 4
Which one of the following factors contribute towards zero economic profit in the long run in perfectly competitive markets?
A. Freedom of entry and exit.
B. Economies of scale.
C. All firms selling identical products.
D. Large number of buyers.
Question 5
If at the current price, the price elasticity of demand is inelastic, then:
A. MR = MC for a single price monopoly.
B. MR < MC> C. MR > MC for a single price monopoly.
D. it is not possible to determine how MR relates to MC for a single price monopoly without further information.
Question 6
If at the current output level P> AVC,
A. then a competitive firm must be making positive economic profit.
B. then a competitive firm must be breaking even.
C. then a competitive firm must be making a negative economic profit.
D. then a competitive firm may be making a positive or negative economic profit or it could be breaking even.
Question 7
A monopolist needs to pay the government a flat licensing fee and is also subject to a per unit tax on the output sold. Which of the following changes will most likely induce the monopolist to sell a smaller output?
A. An increase in the flat licensing fee
B. An increase in the per unit tax
C. A lowering of input prices
D. None of the above
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