practice

Assume that a rm uses capital as a xed factor of production and uses labor as a variable factor. The marginal product of labor at rst increases and then decreases with the amount of labor. (a) Using a correctly labeled graph, draw and identify the frrm's average total cost curve (ATC), average variable cost curve (AVC), and marginal cost curve (MC). (b) Given your graph in part (a), answer each of the following. (i) Why is the MC shaped as it is? (ii) What does the difference between the AVC and the ATC represent? (c) Dene economies of scale. ((1) Draw a long-run average total cost curve that has a region of economies of scale followed by a region of diseconomies of scale, as output increases