AP_Krugman_Textbook

558 section 10 Behind the Supply Curve: Profit, Production, and Costs

Tackle the Test: Free-Response Questions

1. Use the information in the table below to answer the following
   questions.
   Q VCTC
   0 $0 $40
   12060
   25090
   3 90 130
   4 140 180
   5 200 240
   a. What is the firm’s level of fixed cost? Explain how you
   know.
   b. Draw one correctly labeled graph showing the firm’s
   marginal and average total cost curves.

Answer (6 points)

1 point: FC=$40

1 point:We can identify the fixed cost as $40 because when the firm is not
producing, it still incurs a cost of $40. This could only be the result of a fixed
cost because variable cost is zero when output is zero.

1 point:Graph with correct labels (“Cost of unit” on vertical axis; “Quantity” on
horizontal axis)

1 point:Upward sloping MCcurve plotted according to data, labeled “MC”

1 point:U-shaped ATCcurve plotted according to the provided data,
labeled“ATC”

1 point:MCcurve crossing at minimum of ATCcurve (Note: We have simplified
this graph by drawing smooth lines between discrete points. If we had drawn
the MCcurve as a step function instead, the MCcurve would have crossed the
ATCcurve exactly at its minimum point.)

MC

ATC

543210

60

50

40

30

20

Cost of
unit

Quantity

2. Draw a correctly labeled graph showing a firm with an upward
   sloping MCcurve and typically shaped ATC, AVC,and AFC
   curves.