1. A manufacturer of base units for home sensor protection (security, water, carbon monoxide, etc.) produces these units in a small facility in northern Indiana. The firm's engineer has set up "assembly cells" in the facility that she believes will be the most efficient means of producing the units. The following table displays the various costs per hour for producing the units.

Output Per Hour	Total Cost	Fixed Cost	Variable Cost	Avg. Total Cost	Avg. Fixed Cost	Avg. Variable Cost	Marginal Cost
0	$ 100.00	$ 100.00
							$ 30.00
1	$ 130.00	$ 100.00	$ 30.00	$ 130.00	$ 100.00	$ 30.00
							$ 28.00
2	$ 158.00	$ 100.00	$ 58.00	$ 79.00	$ 50.00	$ 29.00
							$ 25.00
3	$ 183.00	$ 100.00	$ 83.00	$ 61.00	$ 33.33	$ 27.67
							$ 21.00
4	$ 204.00	$ 100.00	$ 104.00	$ 51.00	$ 25.00	$ 26.00
							$ 18.00
5	$ 222.00	$ 100.00	$ 122.00	$ 44.40	$ 20.00	$ 24.40
							$ 20.00
6	$ 242.00	$ 100.00	$ 142.00	$ 40.33	$ 16.67	$ 23.67
							$ 23.00
7	$ 265.00	$ 100.00	$ 165.00	$ 37.86	$ 14.29	$ 23.57
							$ 30.00
8	$ 295.00	$ 100.00	$ 195.00	$ 36.88	$ 12.50	$ 24.38
							$ 38.00
9	$ 333.00	$ 100.00	$ 233.00	$ 37.00	$ 11.11	$ 25.89
							$ 40.00
10	$ 373.00	$ 100.00	$ 273.00	$ 37.30	$ 10.00	$ 27.30

1. Explain why Average Total Costs (ATC) declines through the production quantities. Only with the tenth unit per hour does the firm see a minor increase in ATC.
2. Explain why Average Fixed Cost (AFC) declines across all levels of production. What do you call this phenomenon?

1. Explain why Marginal Costs initially decline but then increase with the sixth unit of production. Which short run production principle is at work here in creating this pattern of Marginal Costs?