QUESTION 1 [30 MARKS](a) Define briefly:(i) Variable cost, giving examples that are likely to incur in a global business. [4 marks] (ii) Fixed cost, giving examples that are likely to incur in an insurance company. [4 marks] (b) Explain why, typically, the long run Average Cost curve is U-shaped. [6 marks](c) Using your own words, explain briefly the law of diminishing marginal returns. [8 marks](d) Using diagrams explain why firms do not immediately go out of business if total revenue fails to cover total costs of production. [8 marks]

The table below shows Labour (L) and Total Product (TP) for a firm. L 1 2 3 4 5 6 7 TP 100 300 700 1000 1200 1300 1350 AP MP (a) Calculate the values for the Average Product of Labour (APL) and Marginal Product of Labour (MPL) in the table above. [6 marks] (b) Sketch a labeled diagram of the short-run Total Product, Average Product, and Marginal Product curves for Labour and explain briefly the law of diminishing marginal returns [10 marks] (c) (1) What is meant by Fixed cost and Variable cost and give examples of each that arises in business organization. [4 x 2 marks] (ii) Explain why, typically, the long run Average Cost curve is U-shaped. [6 marks]