Question

Use the table below to answer the next 3 questions

Units of Output	Total Fixed Cost	Total Variable Cost
1	$1000	$200
2		450
3		800
4		1350
5		1950

8. Given the cost schedule above, it can be seen that the MC of the 3rd unit produced is

(a)        $350                                                    (c)        $600

(b)        $550                                                    (d)        $800

9.   AFC is

(a)        constant at all levels of output               (c)        the difference between AVC and ATC

(b)        less than MC when MC is falling           (d)        only important in the long run

10. A firms' short run AVC cost curve is at a minimum at the quantity where

(a)        the AVC is equal to the ATC                 (c)        the AVC is equal to the AFC

(b)        the AVC is equal to the MC                  (d)        the MC is at a minimum

Answer 1

Q8

option a

MC(n)=(TC(n)-TC(p))/(n-p)
MC(n)=marginal cost of n th unit
TC(n)=Total cost of n units of output
TC(p)=Total cost of p unit of output
here, n>p.

MC(3)=(800-450)/(3-2)=$350

the MC is $350

9.

Option c

AFC=ATC-AVC

Average fixed cost is the difference between average total cost and average variable cost. It is downward sloping.

AFC=FC/Q
The fixed cost is constant, and Q increases.

Q10

Option b

An average variable cost and marginal cost is equal at the minimum of average variable cost.

A marginal cost changes in variable cost, and that cuts the AVC curve at its minimum.