Question

1. Explain why fixed cost curve is horizontal, and describe how and why "average total costs"...

1. Explain why fixed cost curve is horizontal, and describe how and why "average total costs" change as production increases.

2. How do agricultural economists derive the market demand curve for the U.S. in a product such as beef?

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Answer #1

1) Fixed cost remains unchanged for any level of output. Since it is unrelated to output, when fixed cost function is plotted on the graph with output on horizontal axis, it becomes parallel to output axis as a horizontal line. ATC changes because ATC = TC/Q and TC = FC + VC. Due to the presence of VC, TC changes and so does the ATC when output changes

2) Market demand is a horizontal summation of individual demand functions. Hence market demand curve for any product will be found when at each price, the quantity demanded by buyers is added and then a demand schedule is prepared. Estimated quantity demanded are also used.

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