An electronic-parts manufacturer with U-shaped short-run cost curves is producing 10 000 units per month and has short-run costs as follows:

AT C = $6.50
AV C = $4.50
AF C = $2.00
MC = $6.90

a. At this level of output, has the firm started experiencing diminishing marginal and average returns? How do you know?

b. At this level of output, is the firm operating below, at, or above its capacity? How do you know?

Now consider a second firm in the same industry. When it produces 10 000 units per month, its short-run costs are as follows:

AT C = $6.00
AV C = $4.50
AF C = $1.50
MC = $3.50

c. At this level of output, has this second firm started experiencing diminishing average and marginal returns? How do you know?

d. Is the firm operating below or above its capacity? How do you know?