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= FC/Q
f. Marginal cost
Its the additional cost that results from increasing output by one unit. Its given by dividing
change in total cost over change in output.
=
TC/
Question 2
Table 1.
Smart
cell
phones
produce
d in an
hour
Total
Cost
(TC)
Variable
Costs
(VC)
a.
0
15
30
45
60
75
90
105
120
135
$3,200
$3,525
$3,875
$4,250
$4,650
$5,075
$5,525
$6,725
$8,210
$9,950
$325
$675
$1050
$1450
$1875
$2325
$3525
$5010
$6750
Average
Variable
Costs
(AVC)
Average
Total
Costs
(ATC)
Average
Fixed
Cost
(AFC)
Marginal
Cost (MC)
b.
n/a
21.67
22.5
23.33
24.17
25
25.83
33.57
41.75
50
c.
n/a
235
129.17
94.44
77.5
67.67
61.39
64.05
68.42
73.70
d.
n/a
213.33
106.67
71.11
53.33
42.67
35.57
30.48
26.67
23.70
e.
n/a
21.67
23.33
25
26.67
28.33
30
80
99
116
Question 3
The minimum output cost level is 90 units. This is because its the level at which minimum
average total cost is incurred.
Question 4
a.
Diminishing effect
In the diminishing returns effect ,the larger the output the greater the amount of variable input
required to produce additional units hence leading to higher average variable cost. This in turn
increase average total cost. Hence, 11th Gizmo results to higher ATC of $22 which is greater
than producing 10 Gizmo at ATC of $ 20
b. Spreading effect.
In the spreading effect, the larger the output the larger the quantity of output over which fixed
cost is spread lowering fixed average cost. This in turn lowers the average total cost. Hence,
producing the 11th Gizmo results to lower average total cost of $18
References
Krugman, P. (2015). First Principles. In Microeconomics (4th ed., pp. 329-356). Retrieved from
https://bookshelf.vitalsource.com/books/9781464144820
Mankiw, G. (2000) .Principles of Micro Economics, 2 ed. California: Harcourt College Pub.
Retrieved from https://www.csun.edu/sites/default/files/micro6_0.pdf