1. What is meant by diminishing marginal returns? Explain how this concept is equivalent to increasing marginal cost.

2. What are firms allowed to do in the long run that they are not allowed to do in the short run?

3. Draw an example of a short run average total cost curve for a firm. Draw an example of a long run average total cost curve for a firm. Label the minimum efficient scale. If the minimum efficient scale in a market is small, what does that tell us about how many firms we should expect to operate?

4. Describe the production rule of a firm in a short run perfectly competitive market. Can this firm make positive economic profit? Negative? Describe the production rule for a firm in a long run perfectly competitive market. Can this firm make positive economic profit? Negative?

5. In the short run, is the supply curve of an industry downward sloping, flat, or upward sloping? What about the long run? Would you expect the price elasticity of supply to be bigger or smaller in the long run? Why?