Question

At a price of Rs 100, the quantity of a good supplied by a firm is 5000. Which of these can be the quantity supplied when the price is Rs 200, assuming diminishing returns?

• A. Rs 2500
• B. Rs 5000
• C. Rs 8000
• D. Rs 10000

Answer 1

The correct option is C

Rs 8000

Price and quantity supplied do not have a linear relationship when diminishing returns are in effect. Hence the average cost of producing 10000 products is more than the average cost of producing 5000 products. Hence, the when price increases by 100%, the output is increased by less than 100%. Only Rs 8000 satisfies this condition.