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 $\$ 5 .$

Answer

d.

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Principles of Microeconomics

Chapter 13

The Costs of Production

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Video Transcript

So let's start by reading the quantities. Jews Hero equals, um 1000 21 geek wants 1001 c zero. He wants five towns hand and See you Won equals 5000 on eight, so we can now use this, too. Sets off errors to calculate. What is the exchange in units on? What is the change in cost? So changing units working on called it Deal Time Q. Tilt Q. It's gonna be kid's hero minus Q. One. That's equal to one, right? And, uh, and that one is just 1000 miners 1001 then deal time seeing or the change in C He's gonna be C zero my nose, C one and it's gonna be 5000 miners. 5000 and eight on The difference between this tomb is gonna be eight. So it doesn't matter if it is negative one or negative eight. Cause when we calculated marginal cause I just got here, we're gonna have that is equal to the changing cast over the changing hunt it is that is eight over one which e quarks A. So if this two numbers were negative, we will still have a But since we put them now. Wait that they're positive and well, we still have eight. No. So marginal customs gonna be paid. Then we have two options I'd earned. Their average cost is at five. Yeah, the average variable cost is five. So one thing we should remember is that they average variable cause ISS so I'm rich. Artful crowds equals variable cost divided quantities. We don't know this. We're not told his value, so we can't really calculate they have rich variable costs. However, we can calculate the average cost and that average cost is gonna be the total cost. Total cost over quantities on the total cost in this case is the same most days. It is the same as total cost. Total cost. So it's gonna be 5000 divided by 1000. Wait is equal 25 So there you have it. Your average cost it's gonna be five on your marginal cause is gonna be eight

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