### Cost Analysis Graph ExplanationThe graph above illustrates the relationship between the firm's output (Q) and its costs: Marginal Cost (MC), Average Total Cost (ATC), and Average Variable Cost (AVC). **Description of the Graph:**- **Axes:** - The horizontal axis represents Output (Q), ranging from 0 to 5. - The vertical axis represents cost, ranging from $0 to $9.- **Curves:** - **Marginal Cost (MC):** This is shown by the red curve, which initially decreases, reaches a minimum, and then sharply increases after Q = 2. - **Average Total Cost (ATC):** The ATC curve is depicted in blue, starting at $8, dipping to a low at Q=2 and rising afterward. - **Average Variable Cost (AVC):** This curve is also blue and sits below the ATC curve, decreasing initially and then increasing beyond Q=2.**Analysis:**When the firm's output (Q) increases from 1 to 2, the Average Total Cost (ATC) decreases from $8 to $5. This occurs due to the dynamics of cost curves at this range. **Answer Options:**- ○ Average Variable Cost (AVC) is falling in this output range.- ○ Marginal Cost (MC) is less than Average Total Cost (ATC) in this output range.- ○ Marginal Cost (MC) is falling in this output range.- ○ Marginal Cost (MC) has reached its minimum in this output range. In the given range (Q=1 to Q=2), the decrease in ATC is primarily because of the MC curve being lower than the ATC, causing the latter to drop. Furthermore, at this point, MC is at its minimum, reducing overall costs as output increases.

$9 MC $8 $7 $6 АТС $5 AVC $4 $3 $2 $1 $0 1 2 3 5 Output (Q) In the diagram above, when the firm's Output (Q) increases from 1 to 2, Average Total Cost (ATC) falls from $8 to $ This is because: Average Variable Cost (AVC) is falling in this output range. Marginal Cost (MC) is less than Average Total Cost (ATC) in this output range. Marginal Cost (MC) is falling in this output range. Marginal Cost (MC) has reached its minimum in this output range. O O

$9 MC $8 $7 $6 АТС $5 AVC $4 $3 $2 $1 $0 1 2 3 5 Output (Q) In the diagram above, when the firm's Output (Q) increases from 1 to 2, Average Total Cost (ATC) falls from $8 to $ This is because: Average Variable Cost (AVC) is falling in this output range. Marginal Cost (MC) is less than Average Total Cost (ATC) in this output range. Marginal Cost (MC) is falling in this output range. Marginal Cost (MC) has reached its minimum in this output range. O O

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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