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Marginal Cost and Tutorial Chapter

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ECO2IQA 2010 Chapter 2 Solutions Note: The page numbers are the page numbers of the original Wisniewski text. 1. Co-ordinate system. Determine which quadrant the following points are in: a. b. c. d. (x, y) = (-2, 2) (x, y) = (2, -2) (x, y) = ((-1)2, 2) = (1, 2) (x, y) = (2-1, 2) = (1/2, 2) y 2.5 Coordinates (x, y) (2-1, 2) ((-1)2, 2) (-2, 2) 2 1.5 1 0.5 x -2.5 -2 -1.5 -1 -0.5 -0.5 -1 -1.5 0.5 1 1.5 2 2.5 (2, -2) -2 -2.5 2. Functions a. Graph y = |x|. (The bar symbols mean take the absolute value of x ie |-3| = 3). If you are not sure what it looks like, plug in a couple values for x and find the corresponding y. ECO2IQA 2010 Tutorial Chapter 2 Solutions Page 1 of 17 10 9 8 7 6 5 4 3 2 1 -10 -9 -8 -7 -6 -5 -4 …show more content…

Here Total Costs initially increase slowly than quickly. ii. Plot ATC, AVC and AFC. Let TC be Total Costs, TVC be Total Variable Costs and TFC be Total Fixed Costs. Therefore, TC = 500 + 20Q − 6Q 2 + 0.6Q3 TVC = 20Q − 6Q 2 + 0.6Q3 TFC = 500 ECO2IQA 2010 Tutorial Chapter 2 Solutions Page 7 of 17 To find the average divide the total by Q. Therefore, TC 500 + 20Q − 6Q 2 + 0.6Q 3 500 = = + 20 − 6Q + 0.6Q 2 ATC = Q Q Q TVC 20Q − 6Q 2 + 0.6Q 3 = = 20 − 6Q + 0.6Q 2 Q Q TFC 500 AFC = = Q Q AVC = $ 200 180 160 140 120 100 80 60 40 20 ATC AVC AFC Q 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 iii. Comment on the economic explanation for the shape of the ATC function. Although the highest power is 2, the ATC function is not a quadratic function as the first term is 500Q-1 and -1 is not a positive integer (However, AVC is a quadratic function). ATC is U-shaped. The U-shape comes from two competing influences on ATC. Notice that ATC = AFC + AVC. Now on the one hand, as Q increases AFC decreases. On the other hand, as Q increases AVC ECO2IQA 2010 Tutorial Chapter 2 Solutions Page 8 of 17 (eventually) increases (because of diminishing marginal productivity as explained in Exercise 2.2 iv)). So ATC initially decreases but eventually increases as output increases. 6. Exponents a. Do Student Activity 2.8 from the text.

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