This question aims to test your understanding of the relationships observed between different cost measurements of a firm's production activity. Suppose then that the cost structure of a given firm may be captured by the following set of curves:

The firm uses two inputs: labor, which is variable and costs $4 per worker, and capital, which is fixed and has a cost of $5 per unit of that input.

a)Identify the cost curves C1, C2and C3. Explain your arguments.

b)Howmanyunitsofcapitalisthefirmusing?Whatisthetotalfixedcostequalto?

(Hint: you need to examine the average fixed cost curve)

c)How much labor is used when the firm operates at the minimum average total cost? Explain.