Bob Edwards owns a business. Bob hires an economist who assesses the shape of the business’s average total cost (ATC) curve as a function of the number of units produced. The results indicate a U-shaped average total cost curve.
Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop's average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that ATC is U-shaped for two reasons. The first reason is the existence of diminishing marginal product, which causes it to rise. What is the second reason? Explain your answer. Assume that the marginal cost curve is linear. (4 marks)
Average fixed cost always declines as output rises because fixed cost is being spread over a larger number of units, thus causing the average total cost curve to fall.
Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop's average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that ATC is U-shaped for two reasons. The first reason is the existence of diminishing marginal product, which causes it to rise. What is the second reason? Explain your answer. Assume that the marginal cost curve is linear. (4 marks)
Average fixed cost always declines as output rises because fixed cost is being spread over a larger number of units, thus causing the average total cost curve to fall.
Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop's average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that ATC is U-shaped for two reasons. The first reason is the existence of diminishing marginal product, which causes it to rise. What is the second reason? Explain your...