Answer to Question #52919 in Microeconomics for Yana

Question

Barbara owns a small shop where dresses are made. At the end of a given month, she has 250 dresses. Her expenses for the month are BAM 1,000 for rent, BAM 6,000 for wages, BAM 1,500 for fabric and thread, and BAM 500 for electricity. Her total variable costs for the month are:
a. BAM 4,000.
b. BAM 32 per dress.
c. BAM 7,500.
d. BAM 8,000.
e. both b. and d.

Mirza lives in Herzegovina and likes to grow zucchini. He applies fertilizer to his crops twice during the growing season and notices that the second layer of fertilizer increases his crop, but not as much as the first layer. What economic concept best explains this observation?
a. The law of diminishing marginal utility.
b. The law of diminishing returns.
c. Return equalization principle.
d. The principal - agent problem.
e. None of the above.

Answer 1

At the end of a given month, she has 250 dresses. Her expenses for the month are BAM 1,000 for rent, BAM 6,000 for wages, BAM 1,500 for fabric and thread, and BAM 500 for electricity. Her total variable costs for the month are: TVC = 6,000 + 1,500 = 7,500
So, the right answer is 
c. BAM 7,500.
If he applies fertilizer to his crops twice during the growing season and notices that the second layer of fertilizer increases his crop, but not as much as the first layer, then the law of diminishing returns best explains this observation, so the right answer is:
b. The law of diminishing returns.