1. Suppose the production of a certain quantity of a good has a certain cost. Can you think of a situation in which producing more of the good costs less?
2. A firm has the following costs for the short-run production of different quantities of a good:
|
q
|
C
|
|
1
|
30
|
|
20
|
40
|
|
40
|
60
|
|
60
|
80
|
|
80
|
130
|
|
100
|
220
|
a) Construct a diagram of the cost function, where you have the quantity on the X-axis and the cost on the Y-axis.
b) How do you find the fixed cost, FC, from the information in the graph? Draw a line indicating the fixed cost at different quantities produced.
c) How do you find the variable cost, VC? Draw it.
d) Draw a new graph below the first one. Draw the marginal cost curve, MC, and the curves for average total cost, ATC, and average variable cost, AVC.
e) Which are the most characteristic points in the total cost curve? Indicate them at the appropriate points in the lower graph. Which are the relations between the characteristic points in the upper and lower graphs?