Question

Consider the following table showing costs of production for a firm in the short run:

Y	FC	VC	TC	AFC	AVC	ATC	MC
0			90	--	--	--	--
1	A						50
2		B	C			85
3					30
4			200	D	E	F
5		150					G
6	90						60

where Y is total output, FC is fixed costs, VC is variable costs, TC is total costs, AFC is average fixed costs, AVC is average variable costs, ATC is average total costs, and MC is marginal cost.

Several cells in the table are marked with a letter. They are referred to in questions below.

Question 1 10 pts

What should the value be for the cell labeled 'A'?

If necessary, type your answer as a decimal rounded to three places after the decimal point.

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Question 2 10 pts

What should the value be for the cell labeled 'B'?

If necessary, type your answer as a decimal rounded to three places after the decimal point.

Question 3 10 pts

What should the value be for the cell labeled 'C'?

If necessary, type your answer as a decimal rounded to three places after the decimal point.

Question 4 10 pts

What should the value be for the cell labeled 'D'?

If necessary, type your answer as a decimal rounded to three places after the decimal point.

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Question 5 10 pts

What should the value be for the cell labeled 'E'?

If necessary, type your answer as a decimal rounded to three places after the decimal point.

Question 6 10 pts

What should the value be for the cell labeled 'F'?

If necessary, type your answer as a decimal rounded to three places after the decimal point.

Question 7 10 pts

What should the value be for the cell labeled 'G'?

If necessary, type your answer as a decimal rounded to three places after the decimal point.

Question 8 5 pts

At how many units of output is marginal cost minimized?

Group of answer choices

1

2

4

5

3

Question 9 5 pts

At how many units of output is average variable costs minimized?

2

1

3

5

4

Question 10 5 pts

At how many units of output is average total costs minimized?

5

1

3

4

2

Question 11 5 pts

Does this firm see benefits from specialization and the division of labor? (Hint: Does marginal cost decrease with more units of output for at least some values of Y?)

Group of answer choices

No, it doesn't

Yes, it does

Question 12 5 pts

Does this firm experience the law of diminishing marginal returns? (Hint: Does marginal cost increase with more units of output for at least some values of Y?)

Group of answer choices

Yes, it does

No, it doesn't

Question 13 5 pts

As Y increases, what should happen to AFC?

Group of answer choices

There is no noticable relationship between Y and AFC

AFC should increase at first, then decrease

AFC should decrease at first, then increase

AFC should continuously increase

AFC should continuously decrease

Answer 1

FC = Total cost at output level of 0

FC + VC = TC

Marginal Cost = Additional cost from extra unit sold

AFC= FC / Y

AVC = VC / Y

ATC = AFC + AVC

Y	FC	VC	TC	AFC	AVC	ATC	MC
0	90	0	90	-	-	-	-
1	90	50	140	90	50	140	50
2	90	80	170	45	40	85	30
3	90	90	180	30	30	60	10
4	90	110	200	22.5	27.5	50	20
5	90	150	240	18	30	48	40
6	90	210	300	15	35	50	60

a) Value of A = 90

b) Value of B = 80

c) Value of C = 170

d) Value of D = 22.5

e) Value of E = 27.5

f) Value of F = 50

g) Value of G = 40

h) Marginal cost is minimum at output level of 3.

i) Average variable cost is minimized at output level of4.

j) Average total cost is minimized at output level of 5.

k) No, marginal cost first falls then rises.

l) Yes, there occurs diminishing marginal returns till output level of 3.

m) AFC must decline as output rises because fixed cost is same at all level of Y. Option D is correct.