Suppose That a Firm Produces Hard Candies Using Both Machines

question 35

Multiple Choice

Suppose that a firm produces hard candies using both machines and labor, and that its quantity of machines is currently fixed but it can vary the number of workers. As more workers are added to operate the machines, output increases. Is this a refutation of the law of diminishing marginal returns?

• A)Yes, because the law definitely states that output will decrease as more workers are added.
• B)No, because we must be observing output in the long run if the stated scenario is occurring.
• C)Yes, because the only way that this could occur is if the number of machines being used is also increasing.
• D)No, because it is entirely possible for output to increase even when the law is in operation.

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Definitions:

Price Competition

A market strategy where companies reduce prices to attract consumers, often leading to a race to the bottom.

Dominant Strategy

In a strategic interaction (game) between two or more players, a course of action (strategy) that a player will wish to undertake no matter what the other players choose to do.

Formal Agreements

Legally binding contracts or treaties between parties that outline specific obligations and rights.

Less Elastic

Describes a situation where demand or supply is relatively unresponsive to changes in price.