Problem 4-10

Pot-Works, a flowerpot maker, has $500 in daily fixed costs and a single variable input (labour), with each worker paid a daily wage of $150. The first worker produces 100 pots, and each new worker adds 100 pots to the business's total output up to a total of 500 pots per day. The graph on the left below shows Pot-Works' fixed cost, variable cost and total cost. The graph on the right shows the associated marginal cost curve.

1400

1200

1000

$ per day

8

0.00

100

200

Flowerpots per day

100

a. Based on these graphs, as quantity increases, total cost and variable cost

200

300

Flowerpots per day

400

500

• both rise in identical fashion, first more slowly and then more quickly.
• both fall in identical fashion, first more slowly and then more quickly.

O both rise in identical fashion, first quickly and then more slowly.

both fall in identical fashion, first quickly and then more slowly.

40

ased on these graphs, as quantity increases, total cost and variable cost

• both rise in identical fashion, first more slowly and then more quickly.
• both fall in identical fashion, first more slowly and then more quickly.

O both rise in identical fashion, first quickly and then more slowly.

both fall in identical fashion, first quickly and then more slowly.

Meanwhile, fixed cost (Click to select)

3. As quantity increases, marginal cost (Click to select)

c. The changes in total and variable cost are related to marginal cost as follows:

• total and variable cost fall when marginal cost rises and rise when it falls.
• total and variable cost fall when marginal cost falls and rise when it rises.
• total and variable cost rise more slowly when marginal cost falls and rise more quickly when marginal cost rises.

O total and variable cost rise more quickly when marginal cost falls and rise more slowly when marginal cost rises.