Provide short answers to the questions. 1. Adam Smiths account of the division of labor says the average cost of production decline as output expands. Suppose Smith is talking about a firm. a. What happens the marginal cost of the firm if Smith is right? b. What happens to a competitive firm in such a case? 2. What if Smith is talking about an industry. What has to happen to allow the average cost for the industry to fall and competitive firms c to exist? 3. Alchian and Allen use average costs to talk about the profitability of a competitive firm. Show why we can simply use marginal costs. 4. In the class we suppose that people exist but the existence of a firm is contingent. Explain Armen A. Alchian, Universal Economics [2018]
