Question 1: Diminishing Returns
- Explain the law of diminishing returns.
- How does the law of diminishing returns explain the shape of the TP curve?
- What is the relationship between the AP curve and the MP curve?
- What is the relationship between the MP curve and the MC curve?
Question 2:
1. Calculation of Cost
- Use the following formulae to complete the table in the next page
- TC = TFC + TVC
- MC = Change in TC/Change in Output
- AFC = TFC/Q
- AVC= TVC/Q
- ATC = TC/Q = AFC + AVC
2. Cost Complete the following table
| Q | TFC | TVC | TC | MC | AFC | AVC | ATC |
| 0 | 20 | 0 | – | – | – | – | |
| 1 | 5 | ||||||
| 2 | 8 | ||||||
| 3 | 13 | ||||||
| 4 | 20 |
Question 3: Cost Curves
(a) What is the relationship between the average total cost curve, average variable cost curve, and marginal cost curve?
(b) Explain why the short-run average total cost curve is U-shaped.
(c) Explain why the long-run average total cost curve is U-shaped.
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