Question 1:
What do understand by the law of diminishing returns?
Question 2:
Make a distinction between fixed and variable costs, using instances.
Question 3:
A perfectly competitive firm faces a price of Rs14 per unit. It has the following short-run cost schedule:
|
Output
|
0
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
|
TC(Rs)
|
10
|
18
|
24
|
30
|
38
|
50
|
66
|
91
|
120
|
1. Plot AC, MC and MR on a diagram.
2. State the profit-maximising output.
3. How much (supernormal) profit is made at this output?
4. Describe, through the use of diagrams, what happens in a perfectly competitive market structure, in the long run if supernormal profits are earned in short run.
5. Why should government intervene in case of a monopoly?