Question

nk spaces of this table. Note that Q, VC. TC, AFC. AVC. ATC. an o output, variable cost, total cost, average fixed cost, average the blank of total cost, and marginal cost, respectively. (10 Points) AFC TAVG 50 n/a n/a n/a n/a 10 10 10 60 30 80 30 6.67 20 36.67 100 150 12.5 37.5 150 30 8.3535 43.33 60 b Please graph the ATC, FC, MC curve respectively (5 Points) c What is shape of ATC and can you explain why? (3 Points) d In the short run, what is the production level when P 30 (4 Points) hint P MR) e In the long run, suppose you are the manager of the business, will you stay rext the market when P 30, Please explain why? (3 Points)

Answer 1

(b) The diagram are drawn (c) ATC is a rectangular hyperbola because area below the ATC curve is constant as it is equal to TFC (d) when p = 30, MR = MC, thus at output equal to 3 units, p = MC, Thus firm will produce 3 units (e) Since at p = 30, is greater than minimum point of AVC, stay in the business in short run in long run, TC = 110 > < TR = Brice times Q = 30 times 3 = 90 Thus firm will make losses and thus exit the industry