Quiz#2 (ans).doc - IAS 106 Intermediate Microeconomics Inst...

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IAS 106 Intermediate Microeconomics Inst. Mario B. Muzzi Quiz #2 This is a twenty point quiz worth 5% of your overall grade in the course. There are 23 points out of 20 possible, i.e., 3 points extra credit. Please show all your work and box your answers. 1) (3pts) Short-Run Production and Costs : (True or False) With typical shaped curves, once marginal product peaks, average total cost is at its lowest point. Explain in words and by graph. Explain in words here : When marginal product peaks it means that marginal cost is at its lowest point. This occurs because marginal cost is the inverse of marginal product. The peak of marginal product and the trough of marginal cost is where diminishing returns begins. At this point, marginal cost is below ATC which means that although immediately after this point marginal cost is increasing ATC is still falling. The intersection occurs later at a higher level of output. 2) (3pts) Long run Production : Using the graph below identify whether the firm is experiencing economies of scale, constant returns to scale, and diseconomies of scale.
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