Question

Cost per unit 9 10 7 8 Quantity (in 1,000) 7. (10 points) Answer the questions below on the basis of the above graph. (a)_(3 points-1 point for short run; 1 point for long run; 1 point for how you can tell) How can you tell if these cost curves are for the short run or the long run? (b) (7 points) Based on the graph answer the following questions. (1 point each) (1) AVC at 6,000 units of output? (2) ATC at 6,000 units of output? (3) AFC at 6,000 units of output? (4) TVC at 6,000 units of output? (5) TFC at all levels of output? (6) TC at 10,000 units of output? (7) When diminishing marginal productivity sets in?

Answer 1

a) These cost curves are for the long run because in the short run, the MC curve is a horizontal straight line.

b)

1) AVC = 4

2) ATC = 5.5

3) AFC = ATC-AVC = 1.5

4) TVC = AVC*Q = 4*6000 = 24000

5) TFC = 1.5*6000 = 9000

6) TC = ATC*Q = 9*10000 = 90000

7) Diminishing returns starts when MC starts increasing =after 3000 units