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Consider the following three cases for how the profit from an activity varies with the level of the activity. For each case, draw the profit
Consider the following three cases for how the profit from an activity varies with the level of the activity.
- For each case, draw the profit graph by plotting the profits for the various levels of the activity and then drawing a smooth curve through the points by hand.
- For each case, indicate whether the activity has decreasing marginal returns, increasing marginal returns, or neither.
- How would your answers in part b change if the graphs plotted in part a were cost graphs instead of profit graphs?
- For each case, use Excels curve fitting method to (1) obtain a nonlinear formula with a quadratic form for the profit graph and then (2) construct the graph. For any case where the activity has neither decreasing marginal returns nor increasing marginal returns, comment on how good a fit is provided by using a quadratic form.
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