Tutorial Questions

1. Use the accompanying data to calculate marginal physical product and average physical product.

Plot total, marginal and average physical product and explain in detail the shapes of the curves and the relationship between each pair of curves.

Inputs of labour	Total product	Marginal product	Average product
1	15
2	34
3	51
4	65
5	74
6	80
7	83
8	82

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1. What is meant by diseconomies of scale and how is it different to law of diminishing return?

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True/False

Please answer the following true/false questions and explain your answer.

1.	Joe's dad owns a newsagency. He expects Joe to spend an hour dropping off pamphlets on his way home from school but he does not pay him because he argues that Joe has to get home anyway. That hour's work is an implicit cost of the newsagency.
2.	Accounting costs include both implicit and explicit costs.
3.	In the long run all factors are variable except for technology which is fixed.

Consider statements 6 -12 using the following graphs. Assume the short run for both graphs.

4.	At points immediately to the right of B there are increasing marginal returns.
5.	At point B, the average product of the variable factor is larger than the marginal product of the variable factor.
6.	The marginal product of labour is zero at point A.
7.	In Graph 2 the marginal product at D is lower than at C because of the Law of Diminishing Returns.
8.	In Graph 2, the average product at C is the same as it is at D.
9.	Graph 2 shows that there are constant returns to the labour input.

Multiple choice

1. The following is the total and marginal product for a firm.

Refer to the above information. When two workers are employed: A. total product is 20. B. total product is 18. C. average product is 10. D. total product cannot be determined from the information given.

1. The following is output data for a firm. Assume that the amounts of all non-labour resources are fixed.

Refer to the above information. Diminishing returns become evident with the addition of: A. the fourth worker. B. the third worker. C. the second worker. D. the first worker.

1. To economists, the main difference between 'the short run' and 'the long run' is that: A.the law of diminishing returns applies in the long run, but not in the short run. B.in the long run, all resources are variable while, in the short run, at least one resource is fixed. C.fixed costs are more important to decision making in the long run than they are in the short run. D.in the short run all resources are fixed, while in the long run, all resources are variable.

1. Which of the following equations is correct?

A) AVC ATC = AFC

B) AVC + ATC = AFC

C) AFC + AVC = ATC

D) ATC + AVC = AFC

1. Refer above Figure. Identify the curves in the diagram.

A) E= average fixed cost curve; F= variable cost curve; G = total cost curve; H = marginal cost curve

B) E= marginal cost curve; F= total cost curve; G= variable cost curve; H = average fixed cost curve

C) E= average fixed cost curve; F= average total cost curve; G= average variable cost curve; H =marginal cost curve

D) E= marginal cost curve; F= average total cost curve; G = average variable cost curve; H = average fixed cost curve

1. Which of the following statements is true?

A) As output increases, average fixed cost becomes smaller and smaller.

B) Average fixed cost does not change as output increases.

C) The marginal cost curve intersects the average fixed cost curve at its minimum point.

D) When marginal cost is greater than average fixed cost, average fixed cost increases.