Economics True/False

False:
Explanation:
Total cost rises at a diminishing rate when marginal cost falls and total cost rises at an increasing rate when marginal cost increases.

False.
Explanation:
Yes indeed the statement is wrong because ‘Returns to a variable factor' operates in the short period and not in long period, as stated. In short period, firm cannot vary all the inputs. In order to vary the level of output, the firm can vary only the variable inputs, as some inputs remain fixed in the short run.

False.
Explanation:
In a situation of diminishing returns to a factor, Marginal Product tends to fall, which implies that Total Product should be increasing though at a diminishing rate.

False.
Explanation:
Average Cost can fall even when Marginal Cost is rising.

False:
Explanation:
As we know the difference between ATC and AVC is AFC and AFC always falls with the increase in production and can never be constant.

False.
Explanation:
Increase in total product indicates increasing returns to factor till the point marginal product is rising. If TP is rising with falling MP then it is not increasing returns to factor.

False:
Explanation:
There may be an intermediate stage when the marginal product may be falling, the average product keeps rising or constant. This occurs when the fixed inputs are better utilised.

False:
Explanation:
It is so because the difference between TC and TVC is equal to TFC that remains constant at level of output.

False.
Explanation:
When MP falls AP may not fall, if falling MP is greater than AP.

False.
Explanation:
In the case of diminishing returns to a factor, only Marginal Product tends to fall. Total Product tends to increase at a diminishing rate.

False.
Explanation:
Total Product will also increase when Marginal Product decreases. In that case, Total Product increases at a diminishing rate.

False.
Explanation:
Average Variable Cost can fall even when Marginal Cost is rising.

False.
Explanation:
Because as output increases, Average Fixed Cost falls but can never be zero. Average Fixed Cost must remain positive even when it is falling continuously with rise in output.

False.
Explanation:
When Marginal Revenue is zero, Average Revenue will be diminishing.

False.
Explanation:
The difference between AVC and ATC is AFC which can never be constant. Since, AFC tends to decline with increase in output, the difference between ATC and AVC must reduce as output increases.

False.
Explanation:
Because when Marginal Revenue is positive and constant, Total Revenue increases at constant rate but Average Revenue tends to be equal to Marginal Revenue.

False:
Explanation:
It is so because the difference between ATC and AVC is AFC and AFC can never be zero.

False:
Explanation:
Total product will also increase when marginal product decreases and when marginal product decreases, the total product increases at diminishing rate.

False.
Explanation:
Because as output increases, the difference between ATC and AVC falls but can never be zero. The difference is equal to AFC, which must remain positive, even when it is falling.

True.
Explanation:
When MP < AP, AP falls.

False.
Explanation:
Because the difference between Total Cost and Total Variable Cost is equal to Total Fixed Cost which remains constant at all levels of output.

False:
Explanation:
It is so because the difference between ATC and AVC is AFC and AFC must decrease with the increase in production.(or must increase as output decreases).

True:
Explanation:
Rising of marginal product implies that the total product increases at an increasing rate. This pulls up the average product also.

False.Explanation:
Marginal Revenue can never be the price at which the last unit of the commodity sold. It simply refers to additional revenue, when an additional unit of output is sold.

False.
Explanation:
When Total Revenue is constant, Average Revenue will be diminishing.

False.
Explanation:
This is because of decline in Marginal Product. Falling Marginal Product implies that Total Product continues to increase at a diminishing rate.

False:
Explanation:
Average product may increase even if marginal product does not increase. Marginal product rises and falls at a faster rate than the average product. Marginal product curve cuts the average product at its maximum point which implies that average product may be increasing even if marginal product is falling.

False.
Explanation:
Returns to a factor shows the changes in total product of a good when only the quantity of one input is increased, while other inputs kept constant.

False.
Explanation:
Average Product can rise even when Marginal Product falls.

False:
Explanation:
As when there is diminishing returns to a factor, total product increases at diminishing rate and never falls during diminishing returns.

False:
Explanation:
This is because when there are diminishing return to factor, then total product increase at diminishing rate.

True:
Explanation:
It is so because MC is confined to single unit i.e., why it falls rapidly and rise rapidly. As average cost is shared by all the units of the commodity, i.e., why it falls gradually and rise gradually.

False.
Explanation:
When MC > AVC, AVC rises.

False.
Explanation:
With an increase in level of output, the vertical distance between AFC curve and AC curve goes on increasing.

False:
Explanation:
Marginal product can be negative. But the average product can never be negative, because total product will always be a finite quantity.

False:
Explanation:
AC can fall even when marginal cost is rising. It is so because MC is confined to single unit, i.e., why it falls rapidly and rise rapidly. As, average cost is shared by all the units of the commodity, i.e., why it falls gradually and rise gradually.

False:
Explanation:
Average cost can also fall when MC is rising. It is so because MC is confined to single unit that is why it falls rapidly and rise rapidly. As, average cost is shared by all the units of the commodity i.e., why it falls gradually and rises gradually.

False:
Eplanation:
It is not necessary that the increase in total product always indicates that there are increasing returns to factor because when there are diminishing returns to factor, then also total product increases but at a diminishing rate.

True.
Explanation:
The law of variable proportion states that as we increase the quantity of only one variable input, keeping other inputs fixed, the total product increases at an increasing rate in the beginning, and then increases at a decreasing rate.

False.
Exaplanation:
Average Product can rise even when Marginal Product falls, but lies above AP.

False.
Explanation:
When there are diminishing returns to a factor, total product always does not decrease. Total product will decrease only when marginal product is negative. Total product will not decrease if Marginal Product is positive even if it is declining.

False.
Explanation:
It is not necessary because in the stage of diminishing returns to a factor, Total Product also increases but at a diminishing rate.

False:
Explanation:
Average fixed cost means per unit fixed cost. Average fixed cost is obtained by dividing the total fixed cost by output. As a result, average fixed cost goes on falling. But average fixed cost will never be zero. Because zero average fixed cost means zero fixed cost which is not possible.

False. Explanation:
When there are diminishing returns to factor, MP always fall but TP may not fall, TP continues to increase until MP becomes negative.

False:
Explanation:
It is so because when there are diminishing returns to factor, only marginal product tends to fall and total product tends to increase at a diminishing rate.

True:
Explanation:
As when there is increasing return, total product increases at increasing rate and when there are diminishing returns, total product increases at a diminishing rate.