Under prefect competition, a firm only earns normal profit in the long run
as competition drives prices down to long-run marginal cost. Economic
profit is zero.
Economics MCQ - Economics Section 1
B is correct.
Analyst 1 is not correct because labor productivity is calculating by
dividing total output by total labor. Analyst 2 is correct.
The point at which, the benefit of employing one more labor starts to decrease is termed as diminishing marginal product of labor.
4
The Production Manager of a manufacturing company has gathered the following information:
| Labor (L)Â | Total Product (TP) |
| 0Â | 0 |
| 1Â | 175 |
| 3Â | 450 |
| 5Â | 600 |
| 7Â | 675 |
| 9 | 700 |
The level of labor at which the average product of labor is highest is closest to:
Average product = Total product / labor. Average product of one worker is 175.
Average product of 3 workers = 450 / 3 = 150.
Average product of 5 workers = 600 / 5 = 120. It
is the highest for 1 worker.
5
The Production Manager of a manufacturing company has gathered the following information:
| Labor (L)Â | Total Product (TP) |
| 0Â | 0 |
| 1Â | 175 |
| 3Â | 450 |
| 5Â | 600 |
| 7Â | 675 |
| 9Â | 700 |
As labor is added, the firm experiences increasing returns. The number of workers where increasing marginal returns turn to diminishing marginal returns is closest to:
Marginal product = Change in total product / Change in labor. The
increase in MP from 0 to 1 worker is 175. This is the only point where
marginal product increases.
