ATC Curve Is U-Shaped

1. Use the law of supply caused by firms experiencing increasing marginal cost in the short run to explain why all producers must receive a surplus whenever they produce and sell more than one unit of a product but may receive no surplus if only one unit is sold. Make up a numerical example to illustrate. Provide two reasons why producer surplus must increase when the price of a product rises. Hint: Refer back to Question 1 on Assignment 3. 2. Explain why the slope of the production function falls as more workers are hired, that is, the total product increases at a decreasing rate, while the slope of the total cost curve rises as more output is produced, that is, TC increases at an increasing rate. 3. Explain fully why the short-run ATC curve is U-shaped, that is, falls then increases as more output is produced in the short run. 4. Why is the long‐run ATC also U‐shaped? Explain fully.

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