105) Use the general relationship between marginal and average values to explain why a marginal cost curve must
intersect an average total cost curve and an average variable cost curve at their minimum points.
Answer: The relationship between marginal and average values can be stated as follows: if the marginal value is
below the average value for a variable, it pulls the average value down and if the marginal value is
above the average value, it pulls the average value up. Applying this to cost curves, if average total cost
is falling, marginal cost must lie below average total cost. If average total cost is rising, marginal cost
must lie above average total cost. Therefore, the marginal cost curve must intersect the average total cost
curve at its minimum point. The same principle applies to the average variable cost curve.
Diff: 2
Page Ref: 366

367/366

367
Topic: Cost Curves
Learning Outcome: Micro 12: Apply methods for measuring and analyzing the effects of inputs and costs on the supply
curve
AACSB: Reflective Thinking
Figure 11

5
106)
Refer to Figure 11

5
above to solve the following problems.
a.
Calculate the fixed cost of production.
b.
Calculate the average total cost of production when the firm produces 20 units of output.
c.
Calculate the average variable cost of production when the firm produces 20 units of output.
d.
Calculate the average fixed cost of production when the firm produces 20 units of output.
e.
Calculate the average fixed cost of production when the firm produces 15 units of output.
f.
If the firm increases output from 15 to 20 units what is the marginal cost of output?
Answer: a.
$100
b.
$22.5
c.
$17.5
d.
$5
e.
$6.67
f.
$14
Diff: 3
Page Ref: 366

367/366

367
Topic: Cost Curves
Learning Outcome: Micro 12: Apply methods for measuring and analyzing the effects of inputs and costs on the supply
curve
AACSB: Analytic Skills
33
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 Fall '13
 Harshad number, AACSB, Page Ref, average total cost