microeconomics book solution 12

B the marginal cost mc of floral arrangements is the

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b. The marginal cost, MC, of floral arrangements is the change in total cost divided by the change in output. So, to compute MC, we first need to compute total cost, TC = FC + VC, as shown in the table. MC per floral arrangement is also shown in the table. MC increases as output increases due again to the principle of diminish- ing returns. 8. You have the information shown in the accompanying table about a firm’s costs. Complete the missing data. Quantity TC MC ATC AVC 0 1 2 3 4 5 $ 20 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? $ 20 10 16 20 24 Ma r ginal p r oduct of labo r Va r iable MPL = cost Ma r ginal cost Quantity Quantity Δ Q/ Δ L VC = of flo r al of labo r of flo r al (flo r al numbe r Total cost a rr angement L a rr angements a rr angements of wo r ke r s TC = MC = (wo r ke r s) Q pe r wo r ke r ) wage r ate FC + VC Δ TC/ Δ Q 0 0 $ 0 $ 100 5 $ 10.00 ( = 50/5) 1 5 50 150 4 12.50 ( = 50/4) 2 9 100 200 3 16.67 ( = 50/3) 3 12 150 250 2 25.00 ( = 50/2) 4 14 200 300 1 50.00 ( = 50/1) 5 15 250 350 S-178 C H A P T E R 1 2 B E H I N D T H E S U P P LY C U R V E : I N P U T S A N D C O S T S S171-S184_Krugman2e_PS_Ch12.qxp 9/16/08 9:22 PM Page S-178
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Solution Solution 8. The accompanying table contains the complete cost data. The total cost of producing one unit of output is the total cost of producing zero units of output plus the mar- ginal cost of increasing output from zero to one, and so forth. The average total cost is just the total cost divided by output. Since the total cost of producing zero output is $20, the variable cost is TC $20. The average variable cost is then just the vari- able cost divided by output. 9. Evaluate each of the following statements. If a statement is true, explain why; if it is false, identify the mistake and try to correct it. a. A decreasing marginal product tells us that marginal cost must be rising. b. An increase in fixed cost increases the minimum-cost output. c. An increase in fixed cost increases marginal cost. d. When marginal cost is above average total cost, average total cost must be falling. 9. a. True. If each additional unit of the input adds less to output than the previous unit (decreasing marginal product), then in order to produce additional output, the firm needs to use increasingly more of the input; that is, the marginal cost of production increases. b. True. As the fixed cost rises, the average fixed cost also rises; that is, the spreading effect is now larger. It is the spreading effect that causes average total cost to decline. Since this effect is now larger, it dominates the diminishing returns effect over a greater quantity of output; that is, average total cost decreases over a greater quantity of output. c. False. An increase in fixed cost does not change marginal cost. Marginal cost is the additional cost of producing an additional unit of output. Fixed cost does not change as output is increased, and so the additional cost of producing an addi- tional unit of output is independent of the fixed cost.
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