1 Explain the difference between the explicit cost of buying a textbook on economics and the opportunity cost, stating any assumptions. How are these costs relevant for the decision to buy the book?
2 Explain the relationship between a firm’s short-run production function and its short-run cost function.
3 Explain whether the following statements are true or false:
a. In the long run a firm might choose to operate a larger plant at less than maximum efficiency rather than a smaller plant at maximum efficiency.
b. Maximum efficiency is achieved when AVC and MC are equal.
c. An improvement in technology will shift the LAC curve upwards.
d. If AVC and price stay the same when there is an increase in fixed costs the
BEO will decrease.
e. A firm can have diminishing returns and increasing returns at the same time but not economies and diseconomies of scale.