Question

Angel Rodriguez pulls up in his 24-foot panel truck in front of Sezz Medi Brick Oven Pizza in Upper Manhattan. Even though it's the middle of the summer, he's delivering — firewood. He says even though fuel costs have doubled in the past year, it's still worth the premium he gets delivering ash and cherry to the captive and growing market in NYC.

1.Based on description above, which are Angel’s variable and fixed costs?

2. Draw a diagram representing Angel’s short run average total cost curve, average fixed cost curve, and average variable cost curve. Show how an increase in fuel costs shifts those short run average cost curves.

3. Suppose the demand for firewood keep increasing, and Angel considers hiring another worker. Is it possible to tell what would happen Angel’s average total costs, average variable costs, and average fixed costs? Explain.

Answer 1