31) Please refer to the figure below depicting cost curves for Micro Oven Corpor

Question

31) Please refer to the figure below depicting cost curves for Micro Oven Corporation to answer the following questions. Costs ($) TC 800 i TVC 500- 450 0 12 3 4 5 6 7 8 9 10 I 12 Units of output a) What is Micro Oven's average fixed cost of producing two units of output? b) What is the average variable cost at three units of output? c) What is the marginal cost of the third unit of output? d) What is the average variable cost at six units of output? e) At what poin t does Micro Oven's production function begin to exhibit increasing marginal costs?

Explanation / Answer

a) Fixed cost is 300. For Q = 2, AFC is 300/2 = 150

b) TVC for Q = 3, is 500 - 300 = 200. AVC for Q = 3, is 200/3 = 66.67

c) Note that TC increases by 50 when it produces the 3rd unit. Hence MC for 3rd unit is 50

d) TVC for 6th unit = 300 so AVC for 6 units = 300/6 = 50

e) After 12 units.

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