The figure shows a typical graph of output y (in thousands of dollars) as a function of capital Investment I (also in thousands of dollars)

(a) Is the point of diminishing returns closest to the point at which I=20, I=60, or I=120? Explain.

(b) The average output per dollar of capital investment is defined as the total output divided by the amount of capital investment; that is,

Calculate the slope of a line from (0, 0) to an arbitrary point (I, f (I)) on the output graph. How is this slope related to the average output?
(c) Is the maximum average output attained when the capital investment is closest to I=40, to I=70, or to I=140? Explain.

Transcribed Image Text:

f(I) y 700 600 500 y=f(I) 400 300 200 100 20 40 60 80 100 120 140 +