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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.

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Expert Solution

When the marginal cost curve is constant, it means that the cost of producing each subsequent unit is same no matter how many or how much quantity is produced. In this situation, the per unit cost of production (average cost) is equal to the marginal cost. Since the fixed costs are always declining with increase in the quantity produced, it is the average variable cost that is equal to the marginal cost. The average total cost(ATC) is the sum of the average fixed cost(AFC) and average variable cost (AVC). These are shown in the figure below:

Rahul Sunny answered 2 years ago
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