1. If the government imposes a $1 per-unit tax, how do the marginal, average total, and average variable costs change? What if instead the government imposes a $100 per-firm tax?

2. a) Why are short-run marginal cost curves expected to slope upward?
b) If you know that average costs are increasing, is the marginal cost curve above or below the average cost curve?
c) If you know that marginal costs are increasing, is it necessarily true that the average cost curve is below marginal cost?
d) Why does the average total cost curve always start above the marginal cost curve in the short run?
e) If marginal cost is equal to average cost, what do you know about that point on the average cost curve? Why?

Solution Preview

1. A $1 per unit (of end product) tax would increase the marginal costs by $1 per unit. The average total cost would be one dollar higher (you add all costs and divide by the level of output). This kind of tax would be variable, and so the variable costs would be $1 higher at all levels (higher than before the tax was imposed) and the average variable cost would be $1 higher ...

Solution Summary

A synopsis of short-run marginal cost curves is embedded.

... the output associated with minimum average total costs. ... then draw the following curves (on a ...Short-run average cost curve; Short-run marginal cost curve. ...

...marginal-cost curve must interesect the short-run average total ... Why doesn't the marginal cost curve also interest the average fixed cost curve at it's ...

... each of the following have on a firm's short-run marginal cost curve and its total fixed cost curve? ... Fixed costs (FC) are costs that do not vary with the ...

... B) Why are short-run marginal cost curves expected to slope upward? C) If you know that average costs are increasing, is the marginal cost curve above or below ...

... below this point the firm will not be able to cover even its variable costs. ... Assume that the firm's short-run total cost and marginal cost surves have ...

... of the following would be considered to be a variable input in the short run? ... Plotting of cost curves; multiple choice questions related to long-run costs...

... average variable costs, average total costs, and marginal costs. ... why the ATC and MC curves are U ... 9. Explain why the short-run marginal-cost curve must intersect ...

... LRAC are generally flatter than short run average cost curve... firm tends to have a cost advantage, and ... of TC Average Variable Average Total Marginal Costs cars(Q ...

... on the graph and join the points to make curves for TFC ...Short-Run Marginal Costs. Short-run marginal cost (SRMC) is the change in total cost resulting from a 1 ...