8644685.pdf - IB Economics Welker Unit 1.5.1 Costs of Production Review Activity 1 Assume that the firm below experiences increasing marginal returns

8644685.pdf - IB Economics Welker Unit 1.5.1 Costs of...

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IB Economics Welker Unit 1.5.1 - Costs of Production Review Activity 1. Assume that the firm below experiences increasing marginal returns until it produces its third unit of output, then experiences diminishing marginal returns. Draw the firm’s MC, AVC and ATC curves assuming... the MC and the AVC of the first unit of output is $5, and the total fixed cost is $4, and the firm’s ATC is minimized at $5 at a quantity of 5 units. 2. Briefly explain the relationships between: a. The MC curve and the average cost curves b. AVC and ATC:
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3. Assume this firm’s fixed costs rose to $6. Show and explain the effect higher fixed costs would have on the firm’s short-run cost curves. Explain:
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4. Now assume the wages the firm had to pay its workers decreases . Show the effect of the lower wage rate on the firm’s costs of production. Explain:
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5. Assume the government levies a per unit tax of $2 on the firm’s output. Show and eplain the effect a per unit tax levied by the government will have on the firm’s short-run cost curves.
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