Plot an Isocost line for a firm that is spending $10,000 on labor and capital. Then, draw a Cobb-Douglas Isoquant for this firm that intersects your Isocost curve. Label the two intersection points A and B. Draw a second Isosquant that is just tangent to the Isocost curve, and label the point of tangency point C. Explain why it would not be efficient for this firm to produce at point A nor point B.

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A: Answer -

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A: The variable cost refers to the cost which changes with change in the level of output.  AVC = TVC/Q.

Q: Why the ATC under the MC curve?

A: There does need correction in the diagram

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