Depict graphically a total cost curve TC =f+c•Qwhere f> 0 is the fixed cost, i.e., TC(0) = f, and c is marginal cost. a) Depict this Total Cost curve graphically in a fully labelled diagram. b) In a separate diagram, depict the marginal cost curve as well as the average cost curve. c) If a firm with these cost curves happened to be the only firm in the industry, would the firm be a natural monopoly? ('yes' or 'no'). Explain, to justify your answer.

Depict graphically a total cost curve TC =f+c•Qwhere f> 0 is the fixed cost, i.e., TC(0) = f, and c is marginal cost. a) Depict this Total Cost curve graphically in a fully labelled diagram. b) In a separate diagram, depict the marginal cost curve as well as the average cost curve. c) If a firm with these cost curves happened to be the only firm in the industry, would the firm be a natural monopoly? ('yes' or 'no'). Explain, to justify your answer.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: The Cost Of Production

Section12.3: The Various Measures Of Cost

Problem 3QQ

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For a firm with a Total Cost function TC C(Q), recall that the definitions of Marginal Cost (MC) and AverageTotal Cost (ATC) are given as follows:Marginal Cost (MC) = C'(0)Average Total Cost (ATC) = C(Q)/QProve that the marginal cost is equal to the average total cost (MC = ATC) when the average total cost is at itsminimum value.(Hint: By using the definition of average cost function, find the quantity that minimizes it by applying unconstraint optimization.Show that the FOC of the minimization problem implies that MC=ATC has to be satisfied at the minimum level of average cost.)
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