Chapter Frank 9 (Blue Book)
1.
Which letter corresponds to the minimum average cost?
2.
Which letter corresponds to the fixed costs??
3. costs?
Which letter corresponds to the intersection of the marginal and average
a) Shape of the curves i) Specialization ii) Diminishing Marginal productivity (1) Congestion costs (2) MP1/ X1 = q(X1,X2)/ X12 = fX1X1 < 0 b) Graphs i) Based off of above mathematical equations, in the Short Run, overlay MP and AP, and label (1) MP peak (B) (2) ATP peak (C) (3) MP = 0 (D) ii) Using graphs in 2.c.i, draw TP graph, linking points (B), (C), and (D) to locations on the TP graph c) Key points to remember i) The maximum slope of the Total Product curve occurs where the MP is at its maximum (B) ii) A ray from the origin tangent is to the TP curve where Average Total Product is at its maximum, point (C) iii) Total Product is at its maximum when Marginal Product is zero (D) iv) Marginal Product = Average Total Product where Average Product is at its peak (C) v) Marginal Product > Average Total Product when Average Product is rising and vice versa vi) Marginal Product reaches its maximum before Average Total Product does d) Knightian Stages i) When X1 < intersection of ATP and MP (1) Excessive amounts of X2 for the chosen amount of X1 ii) Intersection of ATP and MP < X1 < MP = 0 (1) Efficient levels of production, preferably to the point where MP = 0 iii) MP = 0 < X1 (1) Too much X1 for the given amount of X2 iv) Zone I is Zone III for X2
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