Question 1 Needs Grading A production process is characterized by increasing returns to scale. Define "increasing returns to scale". (1 point) Question 2 Needs Grading A consumer buys certain number of T-shirts every year. The number she buys reflects utility maximization (point of tangency between budget constraint and the indifference curve). The government is considering banning T-shirts altogether. Based on which criterion can the government compensate this person for not wearning T-shirts any more? (0.5 point) Define this criterion (0.5 point). Question 3 Needs Grading If MUx _ My what should a consumer do to maximize utility: should she consume more of good X or more of good Y? Explain why. (1 point) Px Py Question 4 Needs Grading If a production is characterized by constant returns to scale, what does this imply for the shape of the average cost curve? (1 point)