QUESTION ONE

Consider the table below and answer the questions which follow:

Number of Workers	Total Product	Average Product	Marginal Product
1	10
2	25
3	45
4	55
5	60
6	65
7	63
8	58

1. Complete the table by filling in the figures for Average Product and Marginal Product.

[ 7 Marks]

1. What is the Maximum number of workers the firms should employ in order to produce where there are increasing returns? [2 Marks]
2. What is the Maximum number of workers the firms should employ in order to produce where there are decreasing returns? [2 Marks]
3. What is the Minimum number of workers the firm should employ in order to produce where there are negative returns? [2 Marks]
4. Explain why firms are expected to produce where there are decreasing returns to scale in the real world . [2 Marks]

QUESTION TWO

The following statements are concerning Marginal Product (MP), Average Product (AP) and Total Product (TP).

1. Draw the MP and AP curves on the same graph. [4 Marks]
2. State Whether they following are TRUE or FALSE: [9 Marks]
3. When the AP is rising, the MP is also rising
4. When the AP is maximum, the MP is falling.
5. When the AP is falling, MP is yet to reach its maximum.
6. When there are negative returns, TP is falling.
7. When there are decreasing returns, AP is falling
8. When AP=MP, the AP curve is at its Maximum.
9. When AP negative, there are negative returns.
10. When AP and MP are falling, there are decreasing returns.
11. If MP is maximum, AP is yet to reach its maximum.

QUESTION THREE

1. Fill in the table below with values for Total Fixed cost (TFC), Total Variable Cost (TVC), Total Cost (TC), Marginal Cost (MC), Average Fixed Cost (AFC), Average Variable Cost (AVC) and Average Total Cost (ATC). [6 Marks]

Output	TFC	TVC	TC	MC	AFC	AVC	ATC
0	400
1		70
2			500
3		120
4			550

1. Draw the TFC, TVC and TC on the same graph. [3 Marks]
2. Draw the ATC, AVC and MC on the same graph. [3 Marks]
3. Show that the gap between the ATC and AVC is equal to the AFC. [3 Marks]

QUESTION FOUR

1. Using the demand and supply model, explain how equilibrium in the market can be restored after the following: [5 Marks]

1. Imposing a price above the equilibrium price
2. Imposing a price below the equilibrium price
3. An increase in the price of a complement good
4. A decrease in the cost of raw materials.
5. An improvement in technology.

1. State whether the following are TRUE or FALSE (Correct answers without corresponding justifications will not be rewarded): [ 5 Marks]

1. Price elasticity of demand is synonymous to own-price elasticity of demand.
2. If the income increased by 6 percent and demand decreased by 4 percent, the price elasticity of demand is 0.667.
3. A commodity with negative income elasticity of demand can be said to be an inferior good.
4. A commodity which experiences an increase in revenue after a reduction in price has elastic demand.
5. Price elasticity of demand is always negative.

1. A perfectly competitive firms is one which has no influence on the prevailing market price. With the aid of a diagram, explain why firms under perfect competition only make normal profits in the long-run. [5 Marks]