Economics (Irwin Economics)
Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 9.8, Problem 1QQ
To determine

Short run average total cost.

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2.10 The long-run average cost curve for an industry is repre- sented in the following graph. Add short-run average cost curves and short-run marginal cost curves for three firms in this industry, with one firm producing an output of 10,000 units, one firm producing an output of 20,000, and one firm producing an output of 30,000. Label these as Scale 1, Scale 2, and Scale 3, respectively. What is likely to happen to the scale of each of these three firms in the long run? Cost per unit ($) LRAC 10,000 20,000 30,000 Units of output
A computer company produces affordable, easy-to-use home computer systems and has fixed costs of $250. The marginal cost of producing computers is $700 for the first computer, $250 for the second, $300 for the third, $350 for the fourth, $400 for the fifth, $450 for the sixth, and $500 for the seventh. Create a table that shows the company’s output, total cost, marginal cost, average cost, variable cost, and average variable cost. At what price is the zero-profit point? At what price is the shutdown point? If the company sells the computers for $500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate
3. XYZ corporation produces widgets. Its short-run marginal cost curve is given by MC (q) = 10 – 5q + q² (this is a parabola whose minimum occurs at q = 2.5). XYZ's fixed costs are 10. In a two panel diagrams, graph the following cost curves: (a) total cost, (b) total variable cost, (c) total fixed cost, (d) marginal cost, (e) average variable cost, and (f) average total cost. Your diagrams do not need to be scale, but must be internally consistent (i.e. the relationships between different curves must be correct). You do not need to find mathematical expressions for the other cost curves – you only need to sketch lines that are consistent with the shape of the marginal cost curve.
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