AP MICROECONOMIC Practicing with Cost Curves

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AP MICROECONOMIC Practicing with Cost Curves

2008 Audit Exam 50. c

7.D

Calculating Costs Practice Fill out the chart then calculate: ATC of 6 Units AFC of 2 Units AVC of 3 Units ATC of 5 Units AVC of 2 Units AVC of 4 Units AFC of 4 Units ATC of 4 Units Output Variable Cost Fixed Total Marginal $0 $20 - 1 $12 2 $22 3 $27 4 $40 5 $60 6 $100 $20 $10 $9 $16 $11 $5 4

How much does the 10th unit costs? MC $30 25 20 15 10 5 ATC AVC Calculate TC, VC, and FC Total Cost=$200 Variable Cost=$150 Fixed Cost=$50 Notice that VC + FC = TC AFC 7 8 9 10 11 Quantity 5

Per-Unit Costs (Average and Marginal) At output Q, what area represents: TC: VC: FC:

Calculate A-E TP VC FC TC MC AVC AFC ATC 100 - 1 10 110 2 16 116 6 8 A 100 - 1 10 110 2 16 116 6 8 A 58 3 21 121 5 B 33.3 40.3 4 26 126 6.5 25 31.5 30 130 D E 36 136 C 16.67 22.67 7 46 146 6.6 14.3 20.9

Why is the MC curve U-shaped? The MC curve falls and then rises because of diminishing marginal returns. Example: Assume the fixed cost is $20 and the ONLY variable cost is the cost for each worker (Wage = $10) Workers Total Prod Marg Prod Total Cost Marginal Cost - $20 1 5 $30 2 13 8 $40 3 19 6 $50 4 23 $60 25 $70 26 $80

2008 Audit Question 23 23. C

2010 Question 18 B

1. 2. E D 11

2010 Question 19 D