11.4 Q&A

What is the difference between the average cost of production (ATC) and the marginal cost of production (MC)?

ATC = TC/Q MC = D-TC/D-Q

Is Jill Johnson correct when she is saying: "I am currently producing 10000 Pizzas per month at a total cost of 70000. If I produce 10001 Pizzas, my total cost will rise to 70050. Therefore my marginal cost of producing pizza must be increasing "

Jill's average total cost of production is increasing, so her marginal cost of producing pizzas must be increasing

Refer to the graph on the right. For a certain output range, maginal cost is greater than average cost. What is this output range? When marginal cost is less than average cost, average total cost must be

The Output range greater than about 525 Pizzas per day. decreasing

[Related to making the connection] ... Which of the following statements is most true?

The bank loan should not be included in marginal cost because it cannot be avoided by not producing another barrel.

Explain why the marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at minimum?

When the marginal cost of the last unit produced is below the average, it pulls the average down; and when the marginal cost is above the average, it pulls the average up

Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain.

Yes. If marginal cost is less than average total cost, then average total cost will be decreasing.

If the marginal product of labor is rising, is the marginal cost of production rising or falling? If the marginal cost from each new worker is rising,

the marginal cost of that output is falling because the only additional cost to produce more output is the additional wages paid to hire more workers.

The following problem is somewhat advanced. 1) if the wage Jill pays is constant, then what is D-VC in terms of W and L? 2) Marginal costs equal 3) Use you answer above to determine Jills marginal cost of producing pizza if the wage is $700 and the marginal labor product 200 4) If the wage falls to $600 per week and the marginal product of labor is unchanged, then Jill's marginal costs 5) If instead the wage is unchanged at 700 a week, and the marginal product rises to 250, then Jills marginal cost will...

1) W * D-L 2) W / (D-Q/D-L) 3) 3.5 (700/200) 4) Decreases (600/200)= 3 5) Decrease (700/250) = 2.8

Refer to the table belo. What is the marginal cost of producing the 200th pizza?

3.25

Suppose a firm has no fixed costs, so all of its costs are variable, even in the short term. If the firms marginal costs are continually increasing, will the firms average total cost curve have a U-Shape If the firm's marginal costs are $5 at every level of output, what shape will the firm's average total cost curve have?

No. The average total cost curve will be continually increasing. The firm's average total cost curve will be horizontal.

[Related to solved Problem 4]

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Is Jill Johnson correct when she is saying: "I am currently producing 20000 Pizzas per month at a total cost of 80000. If I produce 20001 Pizzas, my total cost will rise to 80050. Therefore my marginal cost of producing pizza must be increasing "

Though Jill's average total cost of production is decreasing, her marginal cost of producing pizzas could be increasing or decreasing