ECON 103 Average Product Increases Discussion
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Question 1. [5 points] Examine whether the following statement is true or false. Explain.
Marginal cost falls when average product rises.
Question 2. [5 points] Examine whether the following statement is true or false. Explain.
Marginal cost is at its maximum when marginal product is at its maximum.
Question 3. Suppose you are a consultant for a firm that is perfectly competitive. The
firm is worried only about its policies in the short run. What would you recommend in
terms of quantity changes (raise, cut, shut down or stay put) and price changes (raise, cut,
stay put) in each of the following situations:
a. [5 points] P= $19
MC = $14
AVC = $20
b. [5 points] P = $111
MC = $106
AVC = $107
[Notations/Abbreviations: P=price; MC = marginal cost; AVC = average variable cost]
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economics
marginal cost
average product increases
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