Question

Nursing Home Industry

A. What are the key determinants of an existing firm’s (1) fixed costs and (2) variable costs? Explain your answer. (10%)

B. What is the shape of the existing firm’s total cost cure and marginal cost curve, U-shaped or L-shaped? A graph illustration here will be a plus. (5%)

Answer 1

A.The key determinants of existing firms are number one fixed cost: fixed costs are those costs which can be used one time and that cannot change with the change in the level of output fixed cost are existing only in the short run the examples of fixed cost are land, heavy machinery etc
Variable cost is those cost which can change with the change in the level of output the examples of variable cost are labour raw materials.
In the long run, all the factors are treated as variable factors therefore the variable cost existing both in the short run and in the long run.
B.The shape of the total cost curve is upward rising from left to right and the shape of the marginal cost curve is U-shaped it can be presented in the diagram as follows.