How does marginal cost affect the average cost

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Reference no: EM133496901

Assignment: Microeconomics

Question I. Suppose you are employed as an economist by a firm that operates in a perfectly competitive market and produces Jackets. The firm is operating in the short run. The price of the jacket is $9, the wage for each worker is $24, and each jacket requires $1 worth of material. The following table shows the relationship between the number of workers and the output of Jackets.

Workers	10	11	12	13	14	15
Output	5	29	41	47	50	52
Labor cost
Material cost
Fixed cost	$2	$2	$2	$2	$2	$2
Total cost
Marginal cost	-	2	3	5	9	13

Question i. Calculate the missing values in the table given.

Question ii. Use the concept of marginal principle and advice the manufacturer about the number of jackets he should produce to maximize his profit.

Question II. What is the price elasticity of demand? How is it different from Income elasticity of demand? Take an example and explain how the concept of elasticity of demand and supply helps the market stakeholders.

Question III. Explain the following terms with suitable examples.

i. Constant returns to scale
ii. Economies of Scale
iii. Minimum efficient scale
iv. Diseconomies scale

Question IV.

Question i. Can indivisible input factors affect the production cost? Take an example and discuss.
Question ii. How does marginal cost affect the average cost? Present the relation of marginal cost and average cost with the help of a graph.

Reference no: EM133496901

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