Economics Department

Short run costs

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1)      How inevitable is it that marginal costs will eventually increase as output rises?

(20 marks)

2)      Explain the principle of diminishing returns to a factor and examine the relationship between the principle of diminishing returns and a firm's marginal and average total costs                                                                                    

(20 marks)

3)      Explain the following:

(a)    Why marginal costs cut average total costs at their minimum point

(b)   Why average fixed costs fall continuously as output rises

(c)    Why average total and average variable costs approach one another asymptotically

(d)   Why total costs rise more and more slowly at low output levels, but more and more quickly at higher output levels.                                            

(20 marks)