Costs and Change Essay

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6. (a) Long-run, (b) Short-run, (c) Short-run, (d) Short-run
7. When marginal product is rising, marginal cost is falling. And when marginal product is diminishing, marginal cost is rising. , top to bottom: 15; 19; 17; 14; 9; 6; 3; -1. Average product data, top to bottom: 15; 17; 17; 16.25; 14.8; 13.33; 11.86; 10.25.
Marginal Product is the slope and the rate of change of the TP curve. When TP is rising at an increasing rate, MP is positive and rising. When TP is rising at a diminishing rate, MP is positive and falling. When TP is falling, MP is negative and falling. AP rises when MP is above it and AP falls when MP is below it.
9. (a) Over the 0 to 4 range of output, the TVC and TC curves slope upward at a decreasing rate because of increasing marginal returns. The slopes of the curves then increase at an increasing rate as diminishing marginal returns occur.
(b) The ATC curve falls when the MC curve is below it; the ATC curve rises when the MC curve is above it. The MC curve must intersect the ATC curve at its lowest point. The same for the minimum point of the AVC curve.
(c) The AVC and MC curves are not affected by changes in fixed costs. If TVC has been $10 less at each output, MC would be $10 lower for the first unit of output but remain the same for the remaining output. The AVC and ATC curves would also be lower by an amount equal to $10 divided by the specific output.
10. (a) MC no change; AVC no change; AFC shift down; ATC shift down.
(b) MC shift up; AVC shift up; AFC no change; ATC shift up.
(c) MC shift down; AVC shift down; AFC no change; ATC shift down.
(d) MC no change; AVC no change; AFC shift up; ATC shift up.
(e) MC shift up; AVC shift up; AFC no change; ATC shift up. -Explain the difference between fixed and variable costs: Fixed cost is the cost which is not attributable to the production volume i.e. fixed in the sense of production volume means remain constant even production is zero. Fixed cost Examples: rent building, light bill. Variable cost is that the change in total proportionality with changes in the level of activity. Variable cost Examples: fuel, material handling, and hourly
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