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# 2.1 - Problem Set 2.1 Use Figure 1 for questions 1-3 Select...

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Problem Set 2.1 Use Figure 1 for questions 1-3. Select the correct answer and explain it in some detail. 1. The cost conditions in Figure 1 imply that the point of maximum average productivity of the variable input coincides with: a. point R on curve II b. point N on curve III c. point L on curve II d. point S on curve III e. none of the above 2. At an output level of q 1 in Figure 1, total fixed cost is a. LK b. 0ALq 1 c. MN d. BMNE e. RS 3. Curves I, II, and III in Figure 1 represent, respectively: a. AP, MP, and TP b. MP, TP, and AP c. MC, ATC, and AVC d. MC, AVC, and ATC e. MC, ATC, and AFC 4. In the long run, increase in output is exactly proportional to the increase in resources. This result is described as: a. constant returns to scale. b. diseconomies of scale. c. diminishing returns. d. increasing returns. e. economies of scale. Use Figure 2 for questions 5-7. 5. In Figure 2, the law of diminishing returns pertains to: a. movement along any of the SAC curves b. movement along SAC 1 and SAC 2 only c. movement from SAC 1 to SAC 2 , but not from SAC 2 to SAC 3 . d. movement along LAC beyond point C. e. movement along LAC up to point C. 6.

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2.1 - Problem Set 2.1 Use Figure 1 for questions 1-3 Select...

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