Chapter 10R, Problem 3FRQ

a)

To determine

Marginal cost (MC), Marginal Revenue (MR), Average Total Cost (ATC), and Average Variable Cost (AVC) curves for the firm on the labeled graph.

Explanation of Solution

The curves would be shown on the labeled graph as follows:

  

MC: black, ATC: green, AVC: red, MR: orange

Economics Concept Introduction

Introduction:

Marginal Cost: Marginal cost refers to the additional cost to produce one additional unit of production.

Marginal Revenue: Marginal revenue is the earnings of a firm by selling each additional unit of goods.

Average Total Cost: Average total cost is calculated by summing up total fixed and cost and variable cost and then dividing it by the total number of units or output.

Average Variable cost: Per unit variable cost refers to the average variable cost.

b)

To determine

Profit maximizing quantity of output Qm on the graph.

Explanation of Solution

The profit-maximization quantity of output would be labeled on the graph as follows:

  

Economics Concept Introduction

Introduction:

The profit-maximization quantity of output is a measure where MR or P and MC are the same or MC cuts MR.

c)

To determine

Fixed cost when MC = 5, MR = 3, ATC = 10, AVC = 7, and Qm = 20

Answer to Problem 3FRQ

The fixed cost is 60.

Explanation of Solution

The fixed cost would be found as follows:

  $\text{Average Total Cost} = \frac{\text{Total Cost}}{\text{Output}}$

  $10 =\frac{\text{Total Cost}}{20}$

  $= 200$

  $\text{Average Variable Cost} = \frac{\text{Total Variable Cost}}{\text{ Output}}$

  $7 = \frac{\text{Total Variable Cost}}{20}$

  $= 140$

  $\text{Fixed cost} = \text{Total cost - Total Variable cost}$

  $= 200 - 140$

  $= 60$

Economics Concept Introduction

Introduction:

Fixed costs can be considered as business costs that are constant such as rent.