Suppose marginal costs are below average total costs at 500 units of output for a manufacturer....

Suppose marginal costs are below average total costs at 500 units of output for a manufacturer. If the manufacturer produces an additional unit, will its average total costs rise, fall, or stay the same? Explain.

Solutions

Expert Solution

The average total cost (ATC) is total cost divided by output and it is U shaped. The shape of the ATC curve is determined by the shape of Averag Fixed Cost (AFC) and Average Variable Cost (AVC). Marginal cost (MC) is the cost incurred for producing an extra unit of output. The MC and AVC are also U shaped. The MC curve passes through the minimum point of AVC and ATC. Thus, when MC is below ATC, ATC is falling, when MC passes through the minimum point of ATC, ATC is same and when MC is above ATC, ATC is rising.

Now it is said that at 500 units of output, the MC is below ATC which means that the ATC is falling. Now if the manufacture produces an additional unit and still the MC lies below the ATC curve, then ATC will fall. And if for the additional unit, MC passes through the minimum point of ATC curve, then ATC will remain the same. And again if for the additional unit, MC lies above the ATC curve, then ATC will increase. Thus the change in ATC is uncertain and depends on the change of MC.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Suppose that at 500 units of output, the marginal revenue is equal to marginal cost. The...

Suppose that at 500 units of output, the marginal revenue is equal to marginal cost. The firm is selling its output at $10 per unit and average total cost at 500 units of output is $6. On the basis of this information, we: can say that the firm should close down in the short run. can assume the firm is not using the most efficient technology. can say that the firm can produce and realize an economic profit in the...

Use the data in the table and calculate the average costs and marginal cost. Output (units)...

Use the data in the table and calculate the average costs and marginal cost. Output (units) Total cost($) AFC AVC ATC MC 0 40 10 54 20 62 30 80 40 84 Discuss the nature of the Average total cost curve. Is it increasing or decreasing? Explain with reason. What is the relation between Average total cost and marginal cost? Draw the typical shape of Average total cost (ATC) and Marginal cost (MC). When will the firm achieve maximum...

a) Find ABC’s average fixed costs, average variable costs, average total costs and marginal costs.

Quantity Total Fixed Cost Total Variable Cost 0 100 0 1 100 50 2 100 70 3 100 90 4 100 140 5 100 200 6 100 360 a) Find ABC’s average fixed costs, average variable costs, average total costs and marginal costs. b) Since ABC is charging the customers at the price of $50, it seems that the company cannot make a profit. The owner decides to shut down operations. What are ABC’s profits/losses? Should the owner shut down...

Quantity Total Revenue Marginal Revenue Total Cost Marginal Cost Fixed Costs ATC Average Fixed Costs Average...

Quantity Total Revenue Marginal Revenue Total Cost Marginal Cost Fixed Costs ATC Average Fixed Costs Average Variable Costs 0 0 - 10 - 10 - - - 1 8 24 14 24 2 16 34 10 17 3 24 42 8 14 4 32 49 7 12.25 5 40 57 8 11.4 6 48 67 10 11.17 7 56 81 14 11.57 8 64 99 18 12.38 9 72 123 24 13.67 1b. At a price of $14, what is...

Question 1 Output total cost marginal cost fixed cost average cost Total revenue average revenue Marginal...

Question 1 Output total cost marginal cost fixed cost average cost Total revenue average revenue Marginal revenue 0 10 0 1 16 20 2 26 40 3 40 60 4 60 80 5 88 100 6 120 120 A) Complete the missing data on the table B) What is the selling price of a laptop case explain your answer c) What is the profit maximizing level of output for this firm explain your answer d) create a graph using three...

In the following market, Workers Output Marginal Product Total Cost Average Total Cost Marginal cost 0...

In the following market, Workers Output Marginal Product Total Cost Average Total Cost Marginal cost 0 0 1 20 2 50 3 90 4 120 5 140 6 150 7 155 Fill the column for marginal product. Can you explain diminishing marginal product based on those numbers? A worker cost $45 a day, and the firm has fixed cost of $80. Use this information to fill in the column for total cost. Fill in the column for average total cost....

Jim runs a nursery. Identify the following costs he faces as fixed costs, average fixed costs, variable costs, average variable costs, total costs, average total costs, or marginal costs:

Jim runs a nursery. Identify the following costs he faces as fixed costs, average fixed costs, variable costs, average variable costs, total costs, average total costs, or marginal costs:a) The rent he pays on his greenhouse in the short runb) The rent he pays on his greenhouse in the long runc) the cost of soil, water, and seeds in the short rund) the per-unit cost of producing a nursery plant in the short rune) the opportunity cost of shutting the...

SUMMARIZE YOUR CALCULATIONS AND USE MICROSOFT EXCEL. DRAW ONE GRAPH SHOWING AVERAGE FIXED COSTS, AVERAGE VARIABLE COSTS, AVERAGE TOTAL COSTS, MARGINAL REVENUE AND MARGINAL COSTS.

OUTPUT AVERAGE FIXED COST AVERAGE VARIABLE COST AVERAGE TOTAL COST 0 1 $180.00 $135.00 $315.00 2 $90.00 $127.50 $217.50 3 $60.00 $120.00 $180.00 4 $45.00 $112.50 $157.50 5 $36.00 $111.00 $147.00 6 $30.00 $112.50 $142.50 7 $25.71 $115.70 $141.41 8 $22.50 $121.90 $144.40 9 $20.00 $130.00 $150.00 10 $18.00 $139.50 $157.50 OUTPUT MARGINAL COST PRICE TOTAL REVENUE TOTAL REVENUE 0 $345.00 1 $300.00 2 $249.00 3 $213.00 4 $189.00 5 $165.00 6 $144.00 7 $126.00 8 $111.00 9 $99.00 10...

Unit costs are defined as a. Marginal costs b. Total costs c. Average costs d. Implicit...

Unit costs are defined as a. Marginal costs b. Total costs c. Average costs d. Implicit costs e. Inverse costs Group of answer choices 2. In the 1890s, German courts were taking a very different approach to cartels and antitrust. What did the German court rule in the pulp cartel case? a. It ruled the cartel was in monopoly that was illegal b. It ruled that cartels were illegal, but that the wood pulp cartel was not a true cartel...

1. Suppose all of a firm's costs are fixed costs. Draw average and marginal costs for...

1. Suppose all of a firm's costs are fixed costs. Draw average and marginal costs for such a firm. Remember to label your axes. Why is it unlikely that this industry would be purely competitive? Assume that the firm is a monopolist. Will there still be any dead-weight (welfare) loss? Graphically illustrate the profit maximizing output, price, profits and welfare loss for this firm. 2. Graphically illustrate the results of long-run equilibrium in pure competition and monopolistic competition. How are...

Subjects