ECON101 Lecture Notes - Lecture 18: Average Variable Cost, Average Cost, Marginal Cost
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1. Marginal cost is defined as
a. a change in total costs from producing one more unit of output.
b. the change in fixed cost from producing one more unit of output.
c. total cost divided by total output.
d. total variable cost divided by total output.
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2. The marginal cost curve often decreases at first and then starts to increase. This is explained by:
a. the law of diminishing returns.
b. economies of scale.
c. increasing ATC.
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3. From the information given in the following table, calculate the marginal cost of the 3rd unit of output. Enter your answer exactly; do not round.
Output | Total Cost | Marginal Cost |
0 | $20 | N/A |
1 | $35 | $15 |
2 | $45 | $10 |
3 | $65 | Ā |
4 | $90 | $25 |
Ā
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A. Fill in the formula for AFC, AVC, ATC, and MC at the top of the column in the gray section within the table. B. Fill in the missing values for TFC, TVC, AFC, AVC, ATC, and MC in the blue sections of the table.
Output |
Total Fixed Cost |
Total Variable Cost |
Total Cost |
Average Fixed Cost |
Average Variable Cost |
Average Total Cost |
Marginal Cost |
0 |
Ā |
Ā |
$600 |
Ā |
Ā |
Ā |
Ā |
5 |
Ā |
Ā |
900 |
Ā |
Ā |
Ā |
Ā |
10 |
Ā |
Ā |
1,150 |
Ā |
Ā |
Ā |
Ā |
15 |
Ā |
Ā |
1,350 |
Ā |
Ā |
Ā |
Ā |
20 |
Ā |
Ā |
1,600 |
Ā |
Ā |
Ā |
Ā |
25 |
Ā |
Ā |
1,900 |
Ā |
Ā |
Ā |
Ā |
30 |
Ā |
Ā |
2,275 |
Ā |
Ā |
Ā |
Ā |
35 |
Ā |
Ā |
2,725 |
Ā |
Ā |
Ā |
Ā |
40 |
Ā |
Ā |
3,375 |
Ā |
Ā |
Ā |
Ā |
45 |
Ā |
Ā |
4,225 |
Ā |
Ā |
Ā |
Ā |
50 |
Ā |
Ā |
5,325 |
Ā |
Ā |
Ā |
Ā |
C. Identify the efficient scale of the firm. Explain your reasoning.
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Part II. Consider the values in the following table for the Winsome Widget Factory
Winsome Widget Factory |
|
Output |
Long-Run Average Total Cost |
0 |
------------------ |
5 |
170 |
10 |
110 |
15 |
85 |
20 |
83 |
25 |
78 |
30 |
75 |
35 |
75 |
40 |
80 |
45 |
82 |
50 |
97 |
a. Over what output levels do the economics of scale occur? Explain.
b. Over what output levels do constant returns to scale occur? Explain.
c. Over what output levels do diseconomies of scale occur? Explain.