QUESTION 2

1. Use a numerical example to illustrate and explain the concept of the marginal product of labour. 1 Mark
2. Assume labour is the only variable input. Explain the implications to a firm marginal returns and marginal cost when it is experiencing decreasing marginal product of labour. 1.5 Marks
3. Explain, with the aid of graph(s), the relationship between marginal cost and average total cost. 1 Mark
4. Assume ceteris paribus. Use the profit equation to explain at which stage of the marginal and average total cost relationship does a firm's profit decline. 1 Mark