Law of diminishing returns sets in from marginal costs
1. A shoe manufacturer consults you for your advice, saying, “I find that my average variable costs are increasing, so what must be happening to my marginal cost and average total cost in that range?
2. A shirt manufacturer says that his economist (who, sad to say, did not study at SMC but in some lesser college) has told him the following about his business:
a) “Your average fixed costs should stay constant even if your output increases.”
b) “To reduce my variable costs I must let go of one of my managers with whom I signed a contract for two years.”
c) “To calculate my total costs, I only have to add my total fixed costs and average variable costs.”
d) “You can determine when the law of diminishing returns sets in from your marginal costs.” The manufacturer wants you to tell him which of the above statements are right and which wrong.
3. If your business’s long-run marginal cost is greater than your long-run average cost, you must be operating in which scale?
4. If you build a bigger storage unit to reduce your long-run average cost, which economic concept will you be considering?
