Costs and Cost Curves Problem Set
E. Fudd produces white carrots using labor and capital. In the
short run capital is fixed and labor is variable. The short run cost
functions for daily production of carrots is shown in the following table.
Fill in the blanks in the table.
1. Average Total Cost must always be greater than Average Variable Cost.
2. When ATC is falling it must be greater than MC.
3. The quantity corresponding to the minimum of ATC must always be less
than the quantity at which AVC reaches its minimum.
4. Over the relevant range of output, Fudd's carrot production exhibits increasing marginal returns to labor.
Ex Libris publishes historical romance novels. The total fixed cost of a
romance, including compensation for the author, is $8,000. The average
variable cost is $10 per copy regardless of the the number of copies
5. What is the marginal cost of an additional copy?
6. An Ex Libris novel sells for $20. How many copies must be sold in
order for the company to break even?
7. Persephone's Ruse (PR for short) ("A lush, romantic tale of passion
and adventure among the golden pleasure domes of Byzantium") is Ex Libris'
most recent book. It printed and sold 4,000 copies. What was the total
cost for this novel?
8. How much profit did Ex Libris make on PR?