Question

(2) (a)Graph the following three short-run cost functions within the 3 stages of production:Total Cost (TC),...

(2) (a)Graph the following three short-run cost functions within the 3 stages of production:Total Cost (TC), Variable Cost (VC), Fixed Cost (FC).(b)Directly below the above, graph Marginal Cost (MC), Average Cost (AC), Average Variable Cost (AVC), and Average Fixed Cost (AFC).Which portion of rising MC is the firm’s supply?

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Answer #1

The FC curve is horizontal because FC is independent of level of output. It is constant even if level output changes in the short-run. VC curve is upward sloping from origin. It means when output is 0, VC = 0. When output increases VC increases. TC is the sum of FC and VC. So, it is also a upward sloping curve FC curve.

AC = TC/Q

AVC = VC/Q

AFC = FC/Q

MC = ∆TC/∆Q

That portion of the MC curve which lies above AVC curve is the firm’s supply.

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