Chapter 10 - Answers to Questions for Review 1 The law of...

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Answers to Questions for Review 1. The law of diminishing returns implies that eventually the VC curve will slope upward. 2. As soon as diminishing returns set in, the MC curve will slope upward. 3. Book publishing. 4. If MC is less than average costs (total or variable), then each additional unit produced should lower average cost. If MC is more than average costs (total or variable), then each additional unit produced should increase average cost. 5. We have decreasing returns. 6. If MC was greater for one activity, then one could lower total cost by shifting some production. Answers to Chapter 10 Problems 1. Quantity Total Fixed Variable ATC AVC AFC MC of output cost cost cost ___________________________________________________________ 0 24 24 0 -- -- -- _____ ______________________________________________________________ 16 1 40 24 16 40 16 24 _____ ______________________________________________________________ 34 2 74 24 50 37 25 12 _____ ______________________________________________________________ 34 3 108 24 84 36 28 8 _____ ______________________________________________________________ 52 4 160 24 136 40 34 6 _____ ______________________________________________________________ 60 5 220 24 196 44 39.2 4.8 _____ ______________________________________________________________ 62 6 282 24 258 47 43 4 _____ ______________________________________________________________ 2. With K fixed at 2, we have Q=6L, which solves for L=Q/6. So we have: VC= wL=wQ/6=Q/3; AVC=1/3; FC=3K=6; AFC=6/Q; TC=6+(Q/3); ATC=(6/Q)+(1/3); MC=1/3
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2.0 ATC AFC AVC=MC 1/3 18 $/Q Q 6 TC VC FC 18 12 $/t Q 3. When MP=AP, marginal cost and average variable cost will be the same.
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