Are the following true, false or uncertain? Explain why.

• a) If there are no fixed costs and the marginal costs are strictly increasing, then the average cost curve is always bellow the marginal cost curve.

• b) If a firm’s expansion path is a straight line starting on the origin, that implies that we have constant returns to scale (Hint – think of the Cobb-Douglas production function).

• c) Theresa bought a store in 2001 for 600,000$. In 2002, she decided to open a business in that store, which brought her 100,000$ per year, in the last 5 years. The business has to be closed now due to a fire. Was having that business open a sensible choice by Theresa?