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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008.

What does this information tell you about the firm?

a. Marginal cost is $5, and average variable cost is $8.

b. Marginal cost is $8, and average variable cost is $5.

c. Marginal cost is $5, and average total cost is $8.

d. Marginal cost is $8, and average total cost is $5.

To determine
Marginal cost and average variable cost.

Explanation

Option (d):

When the firm is producing 1,000 units at a total cost of $5,000, then it increases the production to 1,001 at a total cost of 5,008. Then the marginal cost can be calculated as follows:

Marginal cost = (Total revenue1Total revenue0Quantity1Quantity0)=(5,0085,0001,0011,000)=8

Thus, marginal cost is $8

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