Using the table below, answer the following questions 1. Describe how MC and AVC
ID: 1226672 • Letter: U
Question
Using the table below, answer the following questions
1. Describe how MC and AVC vary with each other.
2. What quantity would be closest to the minimum ATC? How do you know?
3. Identify the quantity that would be considered the point of diminishing returns. Explain your answer relating production and cost function.
Q TC FC VC ATC AVC MC 0 $5 5 0 - 0 - 1 $14 5 $9 14 9 9 2 15 5 10 7.5 5 1 3 16 5 11 5.33 3.67 1 4 18 5 13 4.5 3.25 2 5 24 5 19 4.8 3.8 6 6 19 5 24 4.83 4 5 7 35 5 30 5 4.26 6 8 42 5 37 5.25 4.63 7 9 50 5 45 5.56 5 8 10 60 5 55 6 5.5 10Explanation / Answer
1. MC refers to addition to TC when one more unit of output is produced. AVC is the TVC divided by the output.
2. The quantity that would be closest to the minimum ATC is 4. It is seen from the tavle that the ATC is minimum (i.e. 4.5) at output of 4.
3. The quantity that would be considered the point of diminishing returns is 5. Because after 5, if we increase output, MC and TC increases. MC increases means , it is called diminishing return.
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