. What determines AVC? Explain what AVC depends on. Why would a firm want to know...

What determines AVC? Explain what AVC depends on.

Why would a firm want to know AVC? Explain how a firm uses AVC.

What determines MP? Explain what MP depends on.

Why would a firm want to know MP? Explain how a firm uses MP.

What determines ɳ?

Why would a firm want to know ɳ? Explain how a firm uses ɳ.

Solutions

Expert Solution

a1) AVC is the average variable cost , which is calculated as total variable cost per unit of output. AVC = TVC / q

AVC changes with increase or decrease in output. Therefore, AVC depends on total unit of output.

Firm wants to to know AVC because market price of a good produced by the firm needs to be above the AVC to operate in the long run. In a competitive market, price below AVC often leads to a shut down of a business as firm fails to recover its operating costs. Hence, to understand its own cost structure with respect to the firms is required for a firm and thus a firm would want to know about AVC.

In a competitive market, a firm is a price taker and it cannot influence market price. Therefore, if p< AVC of the firm, it should reduce its scale of production , or in other words, production level should be reduced. Ideally, the minimum point of AVC curve is a optimal point for a firm. In below figure, the firm can operate in the competitive market untill P> AVC.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

b. What determines AVC? Explain what AVC depends on. Why would a firm want to know...

b. What determines AVC? Explain what AVC depends on. Why would a firm want to know AVC? Explain how a firm uses AVC.

Why would an organization want to know what the role of a credit portfolio is?

Provide five reasons why a firm would want to acquire another firm. Explain why most acquisitions...

Provide five reasons why a firm would want to acquire another firm. Explain why most acquisitions are unsuccessful.

If you were making a product to sell, why would you want to know what activities...

If you were making a product to sell, why would you want to know what activities are driving your overhead costs? Give a short example.

Would you want to know if your spouse or lover cheated on you? Why or why...

Would you want to know if your spouse or lover cheated on you? Why or why not ? Does being married make a difference in how you feel about this issue? Why or why not?

Why a firm would want to create pro-forma statements. Explain why creating pro-formas is beneficial to...

Why a firm would want to create pro-forma statements. Explain why creating pro-formas is beneficial to your firm and a healthy practice for a business. Additionally, discuss two challenges or shortcomings of using the percentage of sales approach.

1. Choose a firm that you want to know more about or that you would like...

1. Choose a firm that you want to know more about or that you would like to work for in the future. Research the firm and it's supply chain. Consider this from the raw materials to the end user and explain and define the firms supply chain. 2. How could the firm improve it's supply chain? Consider the Pareto Optimum. 3. Would a vertical merger be an option for the supply chain? What type of efficiencies may be gained? What...

Question