Question

You should be able to answer each of the following questions in a just a few sentences. Graphs or figures might be good to include if they help you to make a better argument or to explain your answer more clearly.

3. Grandma promises to sneak you some bourbon while your parents are cleaning up the Thanksgiving dishes, but only if you can impress her with something you learned in your economics class. Carefully explain to Grandma why the short run average total cost curve is U-shaped so that the two of you can sip a little Maker’s together.

4. In order to improve your chances of matching with someone, you decide to update your online dating profile. Specifically, you decide that to impress potential partners you will show off what you know about monopolies and marginal revenue. Draft out an explanation as to what marginal revenue is for the monopolist so that you can have them all wanting to swipe right!

Answer 1

3)Ans The short run average cost curve is U-shaped. Average cost is derived by dividing the total cost by the total output. At low levels of output the average costs are high due to high average fixed and average variable costs. But as the level of output increases, the average costs fall more sharply due to declining average fixed costs and average variable costs.This is due to internal economies of scale. The average cost continues to fall till they reach the minimum point at the optimum level of output. after the optimum level of ouput is reached average cost increases with additional units of output produced. After the minimum point of AC due to operation of diseconomies of scale average cost starts to rise as the rise in average variable cost is more than offset by the small fall in average fixed costs. Also The U-shaped AC can be attributed to the law of variable proportions. According to this law, when the when the quantity of variable factor is increased while keeping the quantities of other factors fixed, the total output increases with an increasing rate and then decreases at a decreasing rate.

4) Ans Marginal revenue is the change in total revenue resulting from an additional unit of output sold. In other words, marginal revenue indicates how much extra revenuea monopoly receives for selling an extra unit of output. It is obtained by dividing the change in total revenue by change in total output. marginal revenue is the slope of the total revenue curve. The marginal revenue curve of the monopolist lies below his average revenue curve, which implies that marginal revenueis less than price or average revenue. To sell additional units of his output the monopolist must lower the price, so the marginal revenue is less than price.