William observes that a car in 1925 sold for an average of $500 versus $20,000 for a 2005 model. He concludes that 2005 cars must be 40 times better than 1925 cars. What's wrong with this way of thinking?
Poor William has made several errors. First, a 1925 car differs substantially from a 2005 car. As the saying goes, he is comparing apples and oranges. Second, the value of the dollar has declined; William, therefore, is using as his measure a unit that has changed sizes. This is like measuring one room with a 50-inch stick and another room with a 20-inch stick. We can give both measures in terms of sticks, but they are not very comparable.
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Diminishing marginal returns occur when:
A) units of a variable input are added to a fixed input and total product falls. B) units of a variable input are added to a fixed input and marginal product falls. C) the size of the plant is increased in the long run. D) the quantity of the fixed input is increased and returns to the variable input fall.
If marginal revenue exceeds marginal cost in the short run, the perfectly competitive firm earns an economic profit in the short-run
a. True b. False Indicate whether the statement is true or false