Question one (1)

a.State the law of diminishing marginal returns (2 marks)

b.Explain the stages of production (12 marks)

c.Explain the relevance of the stages of production to a business operator? (6 marks)

Question two (2)

a.Explain the following in not more than half a page (2 marks each)

i.Opportunity cost.

ii.Production possibility frontier.

iii.scarcity

b.Using an appropriate diagram, explain how the production possibility frontier becomes a model of scarcity, choice and opportunity cost. (8 marks)

c.Use a production possibilities frontier to describe the idea of Efficiency and Inefficiency. (5 marks)

Question Three (3)

a.When the price of a good increased by 10%, the quantity of demanded increased by 2%.

i.What is the type of demand elasticity (2 marks)?

ii.Are there substitutes for this commodity? If yes, describe the nature of the substitute. Is the good more likely to be a necessity? Why? Is the good likely to be broadly or narrowly defined? Why?(6 marks)

iii.Calculate the price elasticity of demand for this good; explain how total revenue from the sale of the commodity has changed (4 marks)

b.With the aid of appropriate diagrams, explain the relationship between total revenue and price elasticity of demand. (6 marks)