Please answer ALL of these questions so I can cross reference them to my answers

Question

Please answer ALL of these questions so I can cross reference them to my answers.

1. What is the shape of the AVC and ATC curves? What economic law accounts for this shape? How do you know this?

2. What is the shape of the MC curve? Why does it have this shape? How do you know this?

3. What do you know about the values of AVC and ATC at the points where MC crosses them?

4. Is the AVC higher or lower than the ATC? How do you know this?

Are the costs in the short run or the long run? How do you know this?

Vartable Tothv Or A ay Av. Total , Maranal Cost TO l0 0 0 20 ((2-(0) 9/4 8(28-20) 2 10 8 28 3 l0 2333.333 7. 1 5(33-28) 53 43 | 2.5 | 825 |/0.FS?/o(15-35) 16 5e 2 155 43) 20 (18-58) 10 /0 110 8 108 A64 483(08 10 146 1.258191 SS lO

Explanation / Answer

Answer

1) Both ATC and AVC are U shaped curves. As you can see from above data, Both ATC and AVC first decreases and then it started increasing. The law that account for this shape is Law of Variable proportion. Because initially it experiences increasing retuens to production which results decrease in marginal product(also Average Product {Note: Average Product also increases for some time in the Diminishing returns to production}) to be increasing for additional Labour. As Cost is opposite to production Average cost (Also Variable cost) decreases. According to law of variable proportion, After some perticular level of labor(Variable factor) Marginal product( also AP) starts declining and as cost is opposite to product, Average cost and Average variable cost both increases. Thats why Both AC and AVC are U shape Curve.

2) Marginal Cost is also U shaped curves. As you can see from above data, MC first decreases and then it started increasing. The law that account for this shape is Law of Variable proportion. Because initially it experiences increasing retuens to production which results decrease in marginal product to be increasing for additional Labour. As Cost is opposite to production Marginal cost decreases. According to law of variable proportion, After some perticular level of labor(Variable factor), Marginal product starts declining and which leads to increase in Marginal cost. Thats why MC is U shape Curve.

3) Value of AC and AVC both intersect with MC when both are minimum.

AC = TC/Q

Using First Order Condition

Q*d(TC)/dQ - TC = 0.

=> Q*MC = TC

=> MC = AC  

Hence MC intersect AC when AC is minimum.

Similarly MC intersect AVC when AVC is minimum.

4) In a Short Run AVC is lower than ATC because ATC = AVC + AFC and as AFC is always positive hence ATC > AVC and hence AVC is lower than ATC. [Note AFC > 0 because AFC = TFC?Q and TFC and Q are both positive).

Given costs are there in a Short run beacause there is also FIXED COST along with variable cost, and in the long run there is no Fixed cost.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.