Complete The Table And Graph Of AVC, ATC, And MC

Complete The Following Table And Graph Avc Atc And Mc The Best Way

Complete the following table and graph AVC, ATC, and MC. The best way to submit this assignment is by cutting and pasting the table into an Excel spreadsheet or in a Word Document for the calculations. Submit the completed table and the answers to the questions that follow the table. Output FC VC TC AFC AVC ATC MC The way to derive the costs are the basic formulas: Total Cost = Fixed cost + variable cost AVC = Total variable cost/output, ATC = Total cost/output, MC = change in the total cost/ change in output 1. What is the shape of the AVC and ATC curves? What economic law accounts for this shape? How do you know this? 2. What is the shape of the MC curve? Why does it have this shape? How do you know this? 3. What do you know about the values of AVC and ATC at the points where MC crosses them? 4. Is the AVC higher than the ATC or lower than it? How do you know this? 5. Is the costs in the short run or the long run? How do you know this? 6. Assume the company above is in a Perfect Competition Industry: If the price of the product is $20 that is sold at, what will be the profits and how many will be sold at that price? Can the company raise the price? 7. Again in a Perfect Competition Industry: What would the profit situation be at a price of $30, how much to sell at that price? 8. With the Perfect Competition industry: What would the profit situation be at a price of $10, how much to sell at that price? 9. What are the characteristics of a perfect competition company and industry?

Paper For Above instruction

This analysis explores the cost structures and profit maximization points for a firm operating within a perfectly competitive market, emphasizing the importance of understanding AVC, ATC, and MC curves, as well as the implications of market prices on firm profitability and output levels. The study begins by constructing a detailed cost table, calculating fixed costs, variable costs, and total costs, followed by the derivation of average and marginal costs. Understanding the shapes and intersections of these curves offers vital insights into optimal production decisions and market behavior.

Constructing the Cost Table

The foundation of the analysis involves detailed calculations utilizing fundamental cost formulas:

• Fixed Cost (FC): A constant amount that does not change with output.
• Variable Cost (VC): The sum of costs that change with production volume.
• Total Cost (TC): Sum of FC and VC (TC = FC + VC).
• Average Variable Cost (AVC): VC divided by output (AVC = VC / Q).
• Average Total Cost (ATC): TC divided by output (ATC = TC / Q).
• Marginal Cost (MC): Change in TC when output increases by one unit (MC = ΔTC / ΔQ).

Suppose the fixed cost for the firm is constant at $100. As output increases, variable costs escalate based on the production process. Calculated data points should populate columns for FC, VC, TC, AFC, AVC, ATC, and MC.

Analysis of Curves and Market Implications

1. Shape of the AVC and ATC Curves

Both AVC and ATC curves are typically U-shaped. This shape is primarily due to the law of diminishing marginal returns, which causes initially decreasing costs per unit as efficiency increases, then rising costs as additional units contribute less to productivity. The AVC curve approaches the ATC curve from below as output increases because AFC diminishes with higher output, pulling ATC downward initially before both rise due to diminishing returns.

2. Shape of the MC Curve

The marginal cost curve is generally J-shaped. It initially decreases due to increasing returns to scale but eventually rises sharply once diminishing returns set in. The upward-sloping section reflects increasing marginal costs as additional units become more costly to produce.

3. Intersections of MC with AVC and ATC

The MC curve intersects AVC and ATC at their minimum points. This is a fundamental property because when marginal cost is less than average total or variable costs, the averages decrease; when MC exceeds these averages, they increase.

4. Relationship between AVC and ATC at the intersection points

At the points where MC crosses AVC and ATC, AVC and ATC reach their lowest values respectively. Since ATC includes AFC, which decreases as output increases, ATC is always above AVC, except at the points of intersection where they are equal.

5. Cost time frame

The costs considered are in the short run because fixed costs are present and do not vary with output. In the long run, all costs are variable, and firms can adjust all resources.

6-8. Profit and Output at Different Market Prices in Perfect Competition

In perfect competition, firms are price takers, and profit maximization occurs where P = MC, provided the price exceeds AVC. At a price of $20, the firm will produce where MC = $20, and profits can be computed as (Price - ATC) multiplied by quantity. If the price rises to $30, the firm will expand output to where MC = $30; profits may increase if ATC

9. Characteristics of Perfect Competition

A perfectly competitive industry features numerous small firms, homogeneous products, free entry and exit, perfect information, and no market power. Firms are price takers, and resources are perfectly mobile, leading to efficient market outcomes.

References

• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach (9th ed.). W.W. Norton & Company.