CHAPTER 8
1.1 The monthly payment and the insurance do not depend on the amount that you drive. They must
1.2 At 1 million copies, AFC = $4; at 5 million copies, AFC = $0.80; and at 15 million copies, AFC
1.3 Of course museums are interested in developing art appreciation, and since they recognize that
demand curves are downward sloping, this encourages them to offer free admission at some point
1.4 (a)
Q TC AVC MC
0 0 — —
1 30 30 30
1.5 (a) The land, clubhouse, maintenance equipment
1.6 Items b, d, and e are fixed costs because they do not change with output.
1.7 (a) Total fixed cost = (ATC – AVC) x q = (35 – 15) x 500 = $10,000.
1.8 (a) Marginal cost, average variable cost, and average total cost will all increase. Average fixed
cost will not change.
1.9 This statement is not true, as it is confusing marginal cost with average variable cost. Marginal
2.1 Since thesevenues have a fixed seating capacity, the marginal cost of filling vacant seats is
practically zero, so the half-price tickets are priced well above the marginal cost of each extra
2.2 Disagree. Firms earning profits will produce to the right to the minimum point on the average
total cost function. See the following graph:
2.3 At a price of $22, the firm will produce 3 units of output. At 4 units, MC rises above P = MR = d.
TR = $66, TC = $100, Profit = −$34 (a loss of $34). At a price of $42, the firm will produce 5
units of output. At 6 units, MC rises above P = MR = d. TR = $210, TC = $190, profit = $20.
q TVC MC
0 0 —
2.4 (a) Disagree. Firms would not increase output if price were below marginal cost because that
would decrease profits.
2.5 (a)
q TC TFC TVC AVC ATC MC
0 $50 $50 $0 — — —
1 75 50 25 25.0 75.0 25
(b)
(c) 4 units
(d) 8 units
2.6 (a) Marginal cost is a constant $0.10 from one unit of output up to 250 units because the most
(b) At a price of $0.40, the company should process 650 pineapples per day. The MC of the 651st
MC
Marginal cost
Marginal product
2.7
2.8 (a) (b)
2.9
qTF
C
TV
C
M
C
=P MR
T
R
T
C
Profi
t
0 $5 $ 0 — $5 $0 $5 $−5
2.10 (The problem presents only 7 discrete levels of output, zero through 6. In answering this question
assume that you have or can derive the levels of output and costs between the discrete levels of
output and cost. That means you can draw continuous curves that have the shape to reflect the
assumptions. For example, assume that marginal cost is continuous.)
qT
C
AT
C
0 $5 $ —
1 8 8.0
2.11 This implies that when one is falling, the other is rising. If marginal product is rising, marginal