chapter12 - Problems and Applications 1 The following table...

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Problems and Applications 1. The following table illustrates average fixed cost (AFC), average variable cost (AVC), and average total cost (ATC) for each quantity. The efficient scale is four houses per month, because that minimizes average total cost. a. See the table for marginal product. Marginal product rises at first, then declines because of diminishing marginal product. b. See the table for total cost. c. See the table for average total cost. Average total cost is U-shaped. When quantity is low, average total cost declines as quantity rises; when quantity is high, average total cost rises as quantity rises. d. See the table for marginal cost. Marginal cost is also U-shaped, but rises steeply as output increases. This is due to diminishing marginal product. e. When marginal product is rising, marginal cost is falling, and vice versa. f. When marginal cost is less than average total cost, average total cost is falling; the cost of the last unit produced pulls the average down. When marginal cost is greater than average total cost, average total cost is rising; the cost of the last unit produced pushes the average up.
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