# PS7 - METU Department of Economics Econ 101: Introduction...

This preview shows pages 1–4. Sign up to view the full content.

1 METU Department of Economics Econ 101: Introduction to Economics I Sections 01-02-03 2011-2012 Fall Semester Problem Set 7 (Ch. 8 and Ch. 9 in Case et al.; and Relevant Parts of Ch. 8 in Lipsey et al.) PART A - QUESTIONS Q.1) Explain in your own words why the marginal cost curve is shaped the way it is (at first it decreases then it increases). Q.2) When a firm produces 100 units of a good, its average total cost is 3 TL. When the firm produces 101 unist, its average total cost is 3.25 TL. What can you say about the marginal cost of producing the 101st unit? Explain. (You don’t have to give me the exact dollar amount of the marginal cost, but you can say something about the size of the marginal cost of producing the 101st unit.) Q.3) The table below shows the costs for a firm. Total output (Q) 0 1 2 3 4 5 6 7 Total fixed costs 500 Total variable costs 0 280 Total cost 600 1380 Marginal costs 80 160 Average fixed costs Average variable costs 108 Average total costs 225 a. Fill in the remaining costs. b. Show the ATC, AVC, AFC and MC on the same graph. c. Explain what is happening to average fixed costs as Q increases, and explain how this is reflected in your graph.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2 Q.4) The following table gives capital and labor combinations for 10 different levels of memory stick production of the Firm ABC. Q 0 1 2 3 4 5 6 7 8 9 10 K 4 4 4 4 4 4 4 4 4 4 4 L 0 9 17 24 31 39 48 58 69 81 94 a. Assume that the price of labor is \$5 and the price of capital is \$10 per unit. Compute total variable costs, the marginal costs, and the average variable costs for the firm at each output level, and graph their curves. b. Do the curves have the shapes that you expect? Explain. c. Using the numbers and graphs that you constructed, explain the relationship between marginal cost and variable cost. d. Using the numbers and graphs that you constructed, explain the meaning of “marginal cost” in terms of additional inputs needed to produce a marginal unit of output. e. If the firm operates in a perfectly competitive market, and if output price was \$ 55, how many units of output would the firm produce? Explain. Q.5) A perfectly competitive firm has fixed costs of \$30 and total costs as indicated in the table below. Output Total fixed cost Total variable cost Total cost Average fixed cost Average variable cost Average total cost Marginal cost 0 30 1 39 2 47 3 54 4 60 5 67 6 75 7 84 8 95 9 108 10 123 a. Fill in the missing values in the table. b. Graph the curves for total fixed cost, total variable cost, and total cost . c. Graph the curves for AFC, AVC, ATC, and MC. Mark the two key points as discussed in class and also in the textbook. Explain why the MC curve intersects both the AVC and ATC curves at their minimums.
3 d. What will happen to the AVC, ATC, and MC if the fixed cost increases by 40.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 01/05/2012 for the course ECON 101 taught by Professor Gulipektunc during the Spring '11 term at Middle East Technical University.

### Page1 / 9

PS7 - METU Department of Economics Econ 101: Introduction...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online