ECON 6001 Economic Principles Assignment

Q5.    Consider the following statements and decide which are true. Record the correct combination from the possibilities listed below the list of statements.

1. If the returns to the variable input were constant in the short run then the total variable cost curve would be a straight line going through the origin of the graph
2. In the short run the average variable cost curve would be horizontal if the returns to the variable input were constant
3. In the short run, the MC curve would be above the AVC if the average product of labour was falling.
4. On a graph, the average fixed cost curve would be shown as a horizontal straight line.
5. TC = (AVC+AFC)xQ.
6. In the short run, when increasing returns are present, MC and AVC are both upward sloping because the productivity of the variable input is increasing.
7. As output increases the vertical distance between average variable and average total costs narrows.

Answer questions 8 –14 on the basis of the following diagram:


Screen Shot 2017-04-23 at 4.38.23 AM.png

8. The average product of labour is at its maximum at point F.
9. For Q = 0Q1, total revenue is given by the distance 0A.
10. For Q = 0Q1, total costs equal the area measured by the rectangle 0ABQ1.
11. For Q = 0Q1, total variable costs are equal to the area 0CDQ1.
12. For Q = 0Q1, total fixed cost is measured by the distance BD.
13. The MC curve must always cut through the minimum points of the AVC and AFC curves.
14. In the short run, U-shaped AVC curves occur because of diminishing, constant and increasing returns to scale.
15. Economies of scale give rise to the rising portion of the long run average cost curve.


See Page 8 for Q 5 combinations.

Q5 Choose the combination of statements that you think contains the largest number of TRUE statements.

A 4 6 8 9 12 14 15
B 2 5 8 10 11 13 15
C 1 3 6 7 9 12 13
D 1 2 5 7 8 10 14
E 3 4 6 12 13 14 15
F 1 2 3 5 7 10 11

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