Question
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?
- Refer to your answer above about the long-run costs. Calculate the LRATC over each output level.
- Over what range of output do you see economies of scale, and why?
- What is the minimum output that must be produced to minimize LRATC?
- What is the output level at which economics of scale are exhausted?
- Over what range of output do you see constant returns to scale?
- Over what range of output do you see diseconomies of scale?
- Refer to the table above. Which costs are lower? Short-run or long-run total costs? Why?
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