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Economic management exam trial solutions

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Economic management exam trial solutions

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Managerial Economics – Trial Exam – Theoretical Questions Part I: Indicate whether each of the following statements is True (T) or False (F). Comment. (5 Questions, Choose 4)
A

The law of diminishing returns takes effect, when a firm's both marginal product and average product decline after the latter reaching its maximum. False: The law of diminishing returns takes effect when MP reaches its maximum value and starts to diminish “decline”; then, MP equals AP when the latter reaches its maximum value.

B

Decreasing return to scale occurs when a firm has to increase all of its inputs at an increasing rate in order to maintain a constant rate of increase in its outputs.
True: The increase in all of its inputs at an increasing rate will make up for the increase in output at a decreasing rate, thereby resulting in a constant rate of increase in output.

C

Stage III of the production process begins at the point where the total product declines after reaching its maximum.
True: Stage III of the production process begins when the TP reaches its maximum value, and MP equals Zero.

D

Both AVC and ATC curves take a U- shape and they are intersecting over the production of output.
False: Both AVC and ATC curves take a U- shape, but they never intersect because the latter is always more than the AVC “ATC = AFC + AVC”.

E

The minimum point of the average total cost is normally located to the left of the minimum of average variable cost.
False: The minimum point of the ATC is normally located to the right of the minimum of AVC, because the AVC reaches its minimum value before the ATC.

As the number of labour increases, the average product of labour increases until it reaches its maximum then diminishes continuously till it becomes negative.

F

False: As the number of labour increases, the APL increases until it reaches its maximum then diminishes continuously, but it never reaches zero nor becomes negative.
G

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Managerial Economics Trial Exam Theoretical Questions
Part I: Indicate whether each of the following statements is True (T) or
False (F). Comment. (5 Questions, Choose 4)
A
The law of diminishing returns takes effect, when a firm's both marginal
product and average product decline after the latter reaching its maximum.
False: The law of diminishing returns takes effect when MP reaches its
maximum value and starts to diminish “decline”; then, MP equals AP when the
latter reaches its maximum value.
B
Decreasing return to scale occurs when a firm has to increase all of its inputs
at an increasing rate in order to maintain a constant rate of increase in its
outputs.
True: The increase in all of its inputs at an increasing rate will make up for the
increase in output at a decreasing rate, thereby resulting in a constant rate of
increase in output.
C
Stage III of the production process begins at the point where the total
product declines after reaching its maximum.
True: Stage III of the production process begins when the TP reaches its
maximum value, and MP equals Zero.
D
Both AVC and ATC curves take a U- shape and they are intersecting over the
production of output.
False: Both AVC and ATC curves take a U- shape, but they never intersect
because the latter is always more than the AVC “ATC = AFC + AVC”.
E
The minimum point of the average total cost is normally located to the left of
the minimum of average variable cost.
False: The minimum point of the ATC is normally located to the right of the
minimum of AVC, because the AVC reaches its minimum value before the ATC.