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Economics Assignment 2

The document discusses the relationship between marginal cost (MC), average variable cost (AVC), and average total cost (ATC), explaining how changes in MC affect AVC and ATC. It includes tables showing total product, marginal revenue (MR), total revenue (TR), total cost (TC), and profit, indicating that maximum profit occurs at a total product of 7 units. Additionally, it concludes that a firm producing at a lower MR cannot achieve profit and should consider shutting down in the short run.

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23 views2 pages

Economics Assignment 2

The document discusses the relationship between marginal cost (MC), average variable cost (AVC), and average total cost (ATC), explaining how changes in MC affect AVC and ATC. It includes tables showing total product, marginal revenue (MR), total revenue (TR), total cost (TC), and profit, indicating that maximum profit occurs at a total product of 7 units. Additionally, it concludes that a firm producing at a lower MR cannot achieve profit and should consider shutting down in the short run.

Uploaded by

켈리
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

b)

120

100

80

60

40

20

0
0 2 4 6 8 10 12

AFC AVC ATC MC

When marginal cost in lower than the AVC and ATC, AVC and ATC falls, the cost of the last
unit produced pulls the average down. When the marginal costs is higher than the AVC and
ATC, AVC and ATC rises, the cost of the last unit produced push the average up. When
marginal cost equals to ATC or AVC, ATC or AVC is at their minimum point.

c) (i) The AFC and ATC curves will shift upward when the total fixed costs increased to $100.
since the variable cost of production remains unchanged, the AVC curve remains in the
original position. Since the marginal cost is calculated by the change of total variable cost/
change in quantity, MC remains unchanged with unchanged variable costs.
(ii) The AFC curve remains unchanged with unchanged fixed cost. Both AVC and ATC will
shift downward because of the decreased variable cost. Since MC is calculated by change of
total variable cost/ change in quantity, MC become smaller with the lowered variable cost
for each output and the curve will shift downward.

d) MR=55

Total product MR TR TC Profit


0 N.A. N.A. 60 -60
1 55 55 105 -50
2 55 110 145 -35
3 55 165 180 -15
4 55 220 210 10
5 55 275 245 30
6 55 330 285 45
7 55 385 330 55
8 55 440 385 55
9 55 495 450 45
10 55 550 525 25
From the above table, the firm can earn highest profit when total product equals to 7. The
economic profit is $55.
e)

Total product MR TR TC Profit


0 60 -60
1 30 30 105 -75
2 30 60 145 -85
3 30 90 180 -90
4 30 120 210 -90
5 30 150 245 -95
6 30 180 285 -105
7 30 210 330 -120
8 30 240 385 -145
9 30 270 450 -180
10 30 300 525 -225

From the table above, the firm cannot make any profit no matter how many products are
produced, therefore, the firm should shut down in the short run.

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