PART-I

Question 1. [10 points] Examine whether the following statement is true or false. Explain. Marginal cost falls when average product rises.

Question 2. [10 points] Examine whether the following statement is true or false. Explain. Marginal cost is at its maximum when marginal product is at its maximum.

PART-Il

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. [10 points] P = $19 MC = $14 AVC = $20

b. [10 points] P = $111 MC = $106 AVC = $107

[Notations/Abbreviations: P = price; MC = marginal cost; AVC = average variable cost]