Question

In: Economics

Consider a firm with a constant marginal cost curve. Sketch the average cost curves( ATC, AFC,...

Consider a firm with a constant marginal cost curve. Sketch the average cost curves( ATC, AFC, AVC) and associated marginal cost curve. And explain why the cost curves would look as sketched.

Solutions

Expert Solution

A table could be taken as below for understanding the fact.

Variable cost (VC) per unit = $5 constant (since MC would be constant)

TVC = $5 × U

Fixed cost = $10

AFC = $10/U

TC = TVC + FC

ATC = TC/U

MC = Difference of TC in two successive units.

Units (U): 0, 1, 2, 3, 4, and 5

U

FC

TVC

TC

MC

ATC

AFC

AVC

0

10

0

10

---

---

---

---

1

10

5

15

5

15

10

5

2

10

10

20

5

10

5

5

3

10

15

25

5

8.33

3.33

5

4

10

20

30

5

7.5

2.5

5

5

10

25

35

5

7

2

5

Rahul Sunny answered 2 years ago
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