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1 Arrows Up or Down When Marginal Cost Is Less

The document discusses how marginal cost relates to average cost and the impact on costs from changes in quantity produced, fixed costs, variable costs, and productivity. It provides examples to compute short-run costs including fixed costs, marginal cost, average variable cost, and average total cost. Relationships between the different cost curves are also examined.

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9 views

1 Arrows Up or Down When Marginal Cost Is Less

The document discusses how marginal cost relates to average cost and the impact on costs from changes in quantity produced, fixed costs, variable costs, and productivity. It provides examples to compute short-run costs including fixed costs, marginal cost, average variable cost, and average total cost. Relationships between the different cost curves are also examined.

Uploaded by

trilocksp Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Solved: 1 Arrows up or down When marginal cost is less

1. Arrows up or down. When marginal cost is less than average cost, an increase in
output_____ average cost. When marginal cost exceeds average cost, an increase in
_____output average cost.
2. The short-run average cost of production is the same for two different quantities. _____
(True/False)
3. Compute the Costs. Consider a firm that has a fixed cost of $60. Complete the following
table:

4. Changing Costs. Consider the paddle production example shown in Table Compute the short-
run average cost for 10 paddles with the following changes.

a. Your opportunity cost of work time triples, from $50 to $150.


b. The interest rate for invested funds is cut in half, from 10 to 5 percent.
c. Labor productivity the quantity produced by each workforce doubles.
5. Compute the Short-Run Costs. Consider a firm with the following short-run costs:
a. What is the firm fixed cost?
b. Compute short-run marginal cost (MC), short-run average variable cost (AVC), and short-run
average total cost (ATC) for the different quantities of output.
c. Draw the three cost curves. Explain the relationship between the MC curve and the ATC
curve and the relationship between the AVC curve and the ATC curve.

ANSWER
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