Costs and Cost Curves Problem Set
Temple University

Economics 3501

Name Key

A. Carrots

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.

 Quantity of Output (Q) Total Fixed Cost (TFC) Total Variable Cost (TVC) Total Cost (TC) Average Fixed Cost (AFC) Average Variable Cost (AVC) Average Total Cost(ATC) Marginal Cost (MC) 0 6 0 6 --- --- --- --- 1 6 10 16 6 10 16 10 2 6 18 24 3 9 12 8 3 6 24 30 2 8 10 6 4 6 28 34 1.5 7 8.5 4 5 6 34 40 1.2 6.8 8 6 6 6 42 48 1 7 8 8 7 6 52 58 6/7 52/7 58/7 10

1. Average Total Cost must always be greater than Average Variable Cost. True   False

2. When ATC is falling it must be greater than MC. True   False

3. The quantity corresponding to the minimum of ATC must always be less than the quantity at which AVC reaches its minimum.   True   False

4. Over the relevant range of output, Fudd's carrot production exhibits increasing marginal returns to labor.  True  False   Don't Know

B. Books

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 produced.

5. What is the marginal cost of an additional copy? 10

6. An Ex Libris novel sells for \$20. How many copies must be sold in order for the company to break even? 800

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?  48,000

8. How much profit did Ex Libris make on PR? 32,000