Microeconomics

Short-Run Costs

Starving Student Movers (a competitor to Scratch & Dent), can use varying amounts of labor to move furniture, with the corresponding output

and costs shown in the table below. Fill in the missing cost numbers in the table, and then graph the AC, AVC and MC curves on a separate piece

of graph paper (all three curves can be drawn on the same graph).

L

(Workers/Day)

Q

(Tons/Day)

Marginal

Output

FC

Fixed Cost

VC

Variable

Cost

TC

Total Cost

AFC

Average

Fixed Cost

AVC

Average

Variable

Cost

AC

Average

Cost

MC

Marginal

Cost

0 0 ― $250.00 ― ― ― ―

1 3 400.00

2 7 550.00

3 12 700.00

4 18 850.00

5 23 1,000.00

6 27 1,150.00

7 30 1,300.00

8 32 1,450.00

What is the firm’s fixed cost? $____________

What is the firm’s price of labor? $______________

Starving Student faces diminishing returns to labor if it moves more than _______ tons of furniture per day.

At what output level is the firm’s average cost minimized? Q = _________

At what output level is the firm’s average variable cost minimized? Q = ___________

ADDITIONAL EXERCISES:

If the average cost of producing 25 ice cream cones is $.50 each, what is the total cost of producing 25 ice cream cones? $___________

If the marginal cost of the 25th ice cream cone is $.75, and the average cost of 25 cones is $.50, the producer’s average cost must be (circle one)

falling / at its minimum point / rising

True or False:

If a firm’s marginal output is falling as output increases, then its marginal cost is rising.

If a firm’s average variable cost is rising as output increases, its average cost must also be rising.

An increase in fixed cost would cause marginal costs to increase.

An increase in the price of a variable input would cause marginal costs to increase.

An increase in the price of a variable input would cause average costs to increase.

When marginal cost is rising, average cost must be rising.

When marginal cost is less than average variable cost, average variable cost must be falling.