Question

fill out the table

question 16

The table below provides cost information for a firm. Use this information to answer the following 3 questions. Quantity MC FC VC 0.5 10 20 30 2 40 13. Is this firm operating in the short run or the long run, and how do you know? a. The firm is operating in the short run because there are fixed costs. b. The firm is operating in the long run because both fixed and variable costs change. C. The firm is operating in the short run because marginal cost continues to rise as output increases. d. The firm is operating in the long run because profit is equal to $0 at every level of output. 14. What is the average total cost of producing 20 units of output? a. $1.85 b. $1.10 C. $2.20 d. $1.25 15. What is the marginal cost of production as output increases from 30 to 40? a. $0.50 b. $1.10 c. $2.30 d. $3 16. Under which of the following circumstances would a firm be experiencing diseconomies of scale across a given range of output? a. Marginal cost is greater than long run average cost across that range of output. b. Average total cost falls as output increases in that range. c. Total cost rises from $500 to $600 when output increases from 200 to 400. d. All of the above would imply a firm is experiencing diseconomies of scale.

Answer 1

Q	MC	FC	VC	TC	AC
0		15	0	15
10	0.5	15	5	20	2.00
20	1.7	15	22	37	1.85
30	2.0	15	42	57	1.90
40	2.3	15	65	80	2.00

In the table above, MC is more than AC at the shaded portion.

TC = VC+FC, At Q=0, TC=FC and FC is constant throughout. MC= Change in TC/Change in Q

In a firm when MC is greater than AC and MC rises faster than AC, we say that firm is experiencing diseconomies of scale. If TC rises from $500 to $600 and output rises from $100 to $200, then MC = (100/200) = 0.5. AC at Q = 100 is $5 and AC at Q=600 is $3. AC is falling and MC is lower than AC. It is NOT diseconomies of scale.