Say that a firm has fixed costs of $100 and constant average variable costs of $
ID: 1180329 • Letter: S
Question
Say that a firm has fixed costs of $100 and constant average variable costs of $25, per unit of output.
a) Show AFC, VC, AVC, and MC in a table.
Output
1
2
3
4
5
6
7
8
9
Fixed Cost
100
100
100
100
100
100
100
100
100
Variable Cost
Average Fixed Cost
Average Total Cost
Average Variable Cost
Marginal Cost
25
25
25
25
25
25
25
25
25
b) Graph the AFC , ATC , AVC , and MC curves.
Instructions: Before plotting any points, be sure to round your calculations to the nearest whole number. For each curve, click the Plotter tool and drag the first point you want to plot onto the grid. Continue clicking and dragging the plotter tool until you have identified all of the necessary points for each of these curves. To remove a point from the graph, drag the point off an edge of the graph.
c) Explain why the curves have the shapes they do.
Instructions: Select the correct answer from the list given below.
A. The AFC curve has its normal shape. Because average variable costs do not change, the marginal cost curve is coincident with the AVC curve. The ATC curve is always falling since the costs are always above the MC curve.
B. The AFC curve is always falling, which is different from its standard U-shape. Because average variable costs do not change, the marginal cost curve is coincident with the average variable cost. The ATC curve is always falling since the costs are always below the MC curve.
C. The AFC curve has its normal shape. Because average variable costs do not change, the marginal cost curve is flat at costs = 0. The ATC curve is always falling since the costs are always above the MC curve.
D. The AFC curve is always falling, which is different from its standard U-shape. Because average variable costs do not change, the marginal cost curve is flat at costs = 0. The ATC curve is always falling since the costs are always below the MC curve.
Output
1
2
3
4
5
6
7
8
9
Fixed Cost
100
100
100
100
100
100
100
100
100
Variable Cost
Average Fixed Cost
Average Total Cost
Average Variable Cost
Marginal Cost
25
25
25
25
25
25
25
25
25
Explanation / Answer
Output
1
2
3
4
5
6
7
8
9
Fixed Cost
100
100
100
100
100
100
100
100
100
Variable Cost
25
50
75
100
125
150
175
200
225
Average Fixed Cost
100
50
33.3
25
20
16.66
14.28
12.5
11.1
Average Total Cost
125
75
58.33
50
45
41.66
39.28
37.5
36.11
Average Variable Cost
25
25
25
25
25
25
25
25
25
Marginal Cost
25
25
25
25
25
25
25
25
25
c) Explain why the curves have the shapes they do.
A. The AFC curve has its normal shape. Because average variable costs do not change, the marginal cost curve is coincident with the AVC curve. The ATC curve is always falling since the costs are always above the MC curve.
Output
1
2
3
4
5
6
7
8
9
Fixed Cost
100
100
100
100
100
100
100
100
100
Variable Cost
25
50
75
100
125
150
175
200
225
Average Fixed Cost
100
50
33.3
25
20
16.66
14.28
12.5
11.1
Average Total Cost
125
75
58.33
50
45
41.66
39.28
37.5
36.11
Average Variable Cost
25
25
25
25
25
25
25
25
25
Marginal Cost
25
25
25
25
25
25
25
25
25