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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

Jane’s Juice Bar has the following cost schedules:

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a. Calculate average variable cost, average total cost, and marginal cost for each quantity.

b. Graph all three curves. What is the relationship between the marginal-cost curve and the average-total-cost curve? Between the marginal-cost curve and the average-variable-cost curve? Explain.

Subpart (a):

To determine
An average total cost, average variable cost and marginal cost.

Explanation

Table -1 shows the variable cost and total cost schedule.

Table -1

Quantity Variable Cost Total Cost
0 $0.00 $30.00
1 10.00 40.00
2 25.00 55.00
3 45.00 75.00
4 70.00 100.00
5 100.00 130.00
6 135.00 165.00

Average total cost can be calculated by using the following formula:

Average total cost=(Total costQuantity) (1)

Substitute the respective value in the equation (1) to calculate the average total cost for quantity 1:

Average total cost=(401)=10

Thus, the average total cost for quantity 1 is $40

Average variable cost can be calculated by using the following formula:

Average variable cost=(Variable costQuantity) (2)

Substitute the respective value in the equation (2) to calculate the average variable cost for quantity 1:

Average varible cost=(101)=10

Thus, the average variable cost for quantity 1 is $10

Marginal cost can be calculat

Subpart (b):

To determine
An average total cost, average variable cost and marginal cost.

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