a full explanation of your answer. A fully labeled graph is a welcome addition to any answer (if applicable), though it is not necessary. A) Average fixed costs are strictly

a full explanation of your answer. A fully labeled graph is a welcome addition to any answer (if applicable), though it is not necessary. A) Average fixed costs are strictly decreasing as output increases. (5 marks) B) Cobb-Douglas production (for example, q = AKaL b ) can exhibit increasing, decreasing, and constant returns to scale. (5 marks) C) In general, the U-shape associated with the short-run average cost curve is mainly due to declining average fixed costs and decreasing marginal returns to labor. (5 marks) D) If an owner wants to ensure a manager’s incentives are aligned with the company, the manager’s salary should be contingent on the firm’s performance. (5 marks) E) Free entry and exit is a condition associated with short-run perfect competition. (5 marks)

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