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The following table gives the short-run and long-run total costs for various levels of output of Consolidated National Acme, Inc.: Q TC1 TC2 TFC TVC

The following table gives the short-run and long-run total costs for various levels of output of Consolidated National Acme, Inc.:

Q TC1 TC2 TFC TVC AFC AVC ATC MC LRATC

0 0 350

1 300 400

2 400 435

3 465 465

4 495 505

5 560 560

6 600 635

7 700 735

A). Which column, TC1 or TC2, gives long-run total cost, and which gives short-run total cost? How do you know? Explain

B). Refer to your answer aboveand for each output level find the short-run costs: TFC, TVC, AFC AVC, ATC, and MC (Short-run cost columns are added to the table above).

C). Refer to the table and the short-run costs calculation.What shapes would you generally expect each of the following cost curves to have: fixed costs, variable costs, marginal costs, average total costs, and average variable costs?

  • Why the TFC curve and AFC curve differ?

  • Refer to our answer above. Why the three short-run cost curves are U-shaped?

D) Refer to the MC calculation in the table above. At what level of output the law of diminishing marginal returns sets in?

  1. Refer to your answer above about the long-run costs. Calculate the LRATC over each output level.

  1. Over what range of output do you see economies of scale, and why?

  1. What is the minimum output that must be produced to minimize LRATC?
  2. What is the output level at which economics of scale are exhausted?

  1. Over what range of output do you see constant returns to scale?

  1. Over what range of output do you see diseconomies of scale?

  1. Refer to the table above. Which costs are lower? Short-run or long-run total costs? Why?

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