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chapter6questions

# chapter6questions - FIRM PRODUCTION 1(COSTS Many small...

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FIRM PRODUCTION 1. (COSTS) Many small boats are made of fiberglass, which is made from crude oil. a. Assuming that the amount of fiberglass that a firm uses can be varied in the short run and that other factors of production are fixed, draw a standard set of cost curves for a firm in the boat industry. Clearly label the average total cost curve, the average variable cost curve, the average fixed cost curve and the marginal cost curve. b. Now suppose that the price of crude oil rises, on your diagram show what happens to the cost curves of an individual boat-making firm in the short run. Answer: see below 2. (COSTS) Suppose that the following table shows the production schedule for sweaters. Assume that the price of a worker is \$25 per day and that the price of knitting machines is \$25 per machine per day. Output (Sweaters Per Day) Knitting Machines Workers 1 2 3 1 4 8 11 2 10 18 21 3 13 22 24 4 15 24 26 5 16 25 27 Q P MC 0 AFC ATC 0 ATC 1 MC 1 AVC 0 AVC 1

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a. Complete the following table. Assume that the number of knitting machines is fixed at 1. Labor Output Per Day (Q) Total Fixed Cost (TFC) Total Variable Cost (TVC) Total Cost (TC) Average Fixed Cost (AFC) Average Variable Cost (AVC) Average Total Cost (ATC) 1 4 \$25 \$25 \$50 6.3 6.3 12.5 2 10 \$25 \$50 \$75 2.5 5.0 7.5 3 13 \$25 \$75 \$100 1.9 5.8 7.7 4 15 \$25 \$100 \$125 1.7 6.7 8.3 5 16 \$25 \$125 \$150 1.6 7.8 9.4 b. Putting Q on the x-axis and \$ on the y-axis, plot AC, AVC and ATC.
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