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Output
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,
Average output = f(I)/I
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.
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The indifference curves shown in the following diagrams do not conform with those drawn earlier in this part of the book, though they do not necessarily.
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