1. Costs of the individual firm
Activity 26

2. M. I. Fortunate?
No!
Your true economic profit from going into business for yourself is $-3,000. , and this is a return of -3%.
The foregone salary of $50,000 and the foregone interest income of $8,000 are opportunity costs, so going into business for herself, cost IM $3,000.
She might not view this as a loss if she places a dollar value on the “psychic income or benefit” of working for herself rather than the corporation

3. Aggregate and Unit Cost structure
Data
Unit
Output
Total
Fixed
Variable Cost
Marginal
(▲TC/ ▲Q)
Average
Variable
$500 $0
100
500
700
1,200
$7.00
$5.00
$12.00
200
1,300
6.00
2.50
6.50
9.00
300
2,300
5.00
1.67
400
2,400
1.25
7.25
3,100
3,600
7.00
1.00
6.20
600
4,320
7.20
0.83
6.37
7,400
5,200
0.71
6.71
7.42

4. Aggregate and Unit Cost structure
Data
Unit
Output
Total
Fixed
Variable Cost
Marginal
(▲TC/ ▲Q)
Average
Variable
$500 $0
100
500
700
1,200
$7.00
$5.00
$12.00
200
1,300
1,800
6.00
2.50
6.50
9.00
300
2,300
5.00
1.67
7.67
400
2,400
2,900
1.25
7.25
3,100
3,600
7.00
1.00
6.20
7.20
600
3,820
4,320
0.83
6.37
7,400
5,200
8.80
0.71
6.71
7.42

5. AGGREGATE COST DATA $6,000 $5,500 $5,000 $4,500 $4,000 $3,500 $3,000
$2,500
$2,000
$1,500
$1,000
$500
$100
$200
$300
$400
$500
$600
$700
QUANTITY OF OUTPUT

6. AGGREGATE COST DATA TC VC FC $6,000 $5,500 $5,000 $4,500 $4,000 $3,500
$3,000
AGGREGATE COST
$2,500
$2,000
$1,500
$1,000 FC
$500
$100
$200
$300
$400
$500
$600
$700
QUANTITY OF OUTPUT

7. 4. How is Marginal Cost represented in the Aggregate Cost Graph?

8. 4. How is Marginal cost represented in the Aggregate Cost Graph?
It is the slope of the Total Cost curve
Move up $700, move over 100
The rise over the run

9. NOTE: Marginal Cost is plotted between output levels
$12
UNIT COST DATA
NOTE: Marginal Cost is plotted
between output levels
$11
$10 $9 MC $8
ATC $7
AVC $6
UNIT COST ($ PE R UNIT) $5 $4 $3 $2 $1
AFC
100
200
300
400
500
600
700
QUANTITY OF OUTPUT

10. 5. On the graph of Unit Cost Data, where is Total Cost per Unit (or Average Total Cost, ATC) at its minimum level of output?

11. From, or between 500 to 600 units of output
5. On the graph of Unit Cost Data, where is Total Cost per Unit (or Average Total Cost, ATC) at its minimum level of output?
From, or between 500 to 600 units of output

12. 6. On the graph of Unit Cost Data, where is Variable Cost per Unit (or Average Variable Cost, AVC) at its minimum level of output?

13. From or between 300 and 400 units of output
6. On the graph of Unit Cost Data, where is Variable Cost per Unit (or Average Variable Cost, AVC) at its minimum level of output?
From or between 300 and 400 units of output

14. 7. On the graph of Unit Cost Data, what is the relationship between Marginal Cost (MC) and Average Total Cost (ATC), when Average Total Cost is at its minimum level of output?

15. 7. On the graph of Unit Cost Data, what is the relationship between Marginal Cost (MC) and Average Total Cost (ATC), when Average Total Cost is at its minimum level of output?
They are equal

16. 8. On the graph of Unit Cost Data, what is the relationship between Marginal Cost (MC) and Average Variable Cost (AVC), when Average Variable Cost is at its minimum level of output?

17. 8. On the graph of Unit Cost Data, what is the relationship between Marginal Cost (MC) and Average Variable Cost (AVC), when Average Variable Cost is at its minimum level of output?
They are equal

18. 9. Explain why marginal cost, on a unit-cost graph, meets average total cost and average variable cost at their minimum points?

19. Suppose your quiz average is 4 out of 5.
9. Explain why marginal cost, on a unit-cost graph, meets average total cost and average variable cost at their minimum points?
By definition
If ATC (TC/Q) and AVC (VC/Q) fall when MC (▲TC/ ▲Q) is below them, as they must and
If ATC (TC/Q) and AVC (VC/Q) rise when MC (▲TC/ ▲Q) is above them, as they must
ERGO - You have to pass through a minimum when you stop falling and start rising
Suppose your quiz average is 4 out of 5.
If on your next quiz (marginal score) you score 3 out of five, your average would drop.
If on the following quiz (marginal score) you score 4 out of 5, your average would rise – as your marginal score has just passed through the minimum level of your average score

20. 10. On the graph of Unit Cost Data, what does the vertical distance between the TC/Q (ATC) curve and the VC/Q (AVC) curve represent?

21. FC/Q or Average Fixed Cost (AFC)
10. On the graph of Unit Cost Data, what does the vertical distance between the TC/Q (ATC) curve and the VC/Q (AVC) curve represent?
FC/Q or Average Fixed Cost (AFC)

22. 11. Explain why fixed cost has no influence on marginal cost.

23. 11. Explain why fixed cost has no influence on marginal cost.
By definition
Fixed cost does not change as output increases
Marginal cost, by definition, is the change in total cost as output changes
ERGO- fixed cost, which does not change, can have no influence on the changes in cost measured by marginal cost
Marginal cost measures the changes in variable costs as output increases