8. Assume that in the short run a firm which is producing 100 units of output (Q

Question

8. Assume that in the short run a firm which is producing 100 units of output (Q) per-period has average total costs (ATC) of $5 and average fixed costs (AFC) of $2. It may be concluded that:

A) TFC = $200 TVC = $300 TC = $500 MC = $2         

B) TFC = $200 TVC = $500 TC = $700 MC = $3

C) TFC = $200 TVC = $300 TC = $500            

D) TFC = $200 TVC = $500 TC = $700

12. Suppose a firm’s lease agreement (rental contract) on its facility has expired and it is free to move to a new location or to stay in its current location (i.e., it can change both its level of capital and labor). The firm expects to have a monthly budget of $2000, and the price of labor is expected to be Pl = $8 per unit and the price of capital is expected to be Pk = $20 per unit. Given this information, the firm’s monthly budget constraint is:

A) L = 250 - 0.4K

B) L = 250 - 2.5K

C) K = 100 - 0.2L

D) K = 100 - 2.5L

E) Both B and C

Please show all steps!

Explanation / Answer

8

TFC=AFC*Q=2*100=200

TC=ATC*Q=5*100=500

TVC=TC-TFC=500-200=300

MC is not 2 as

Marginal cost we calculate as the cost of making one more unit, so for example marginal cost for unit 2 will be =( total cost of unit 2 - total cost of unit 1)/ change in units=(106-103)/(2-1)=3 , so MC will be 3 , not 2

so right answer C) TFC = $200 TVC = $300 TC = $500

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