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Unformatted text preview: Problem Set #5 KEY Microeconomics Spring 2008 Question 1a)Fill in the blanks for the following: Question 1b) Draw a graph that shows marginal cost, average variable cost, and average total cost, with cost on the vertical axis and quantity on the horizontal axis. Answer: Average total cost is u-shaped and reaches a minimum at an output of 7. Average variable cost is u-shaped and reaches a minimum at an output of 3. Notice from the table that average variable cost is always below average total cost. The difference between the two costs is the average fixed cost. Marginal cost is first diminishing, to a quantity 3, and then increases as q increases. Marginal cost should intersect average variable cost and average total cost at their respective minimum points, though this is not accurately reflected in the numbers in the table. If the specific functions had been given in the problem instead of just series of numbers, then it would be possible to find the exact point of intersection between marginal and average total cost and marginal and average variable cost. The curves are likely to intersect at a quantity that is not a whole number, and hence are not listed in the above table. Question 1c)Now this is really simple! Fill in the Blanks. (correction to statement Æ If you ‘have’ any of the elements above…....
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- Spring '08
- Microeconomics, Economics of production, average total cost