Page 600 - Krugmans Economics for AP Text Book_Neat

Tackle the Test: Free-Response Questions
1. Use the information in the table below to answer the following 2. Draw a correctly labeled graph showing a firm with an upward
questions. sloping MC curve and typically shaped ATC, AVC, and AFC
Q VC TC curves.
0 $0 $40
1 20 60
2 50 90
3 90 130
4 140 180
5 200 240
a. What is the firm’s level of fixed cost? Explain how you
know.
b. Draw one correctly labeled graph showing the firm’s
marginal and average total cost curves.

Answer (6 points)

Cost of
unit MC
60

50 ATC

40

30

20

0 1 2 3 4 5 Quantity
1 point: FC = $40
1 point: We can identify the fixed cost as $40 because when the firm is not
producing, it still incurs a cost of $40. This could only be the result of a fixed
cost because variable cost is zero when output is zero.
1 point: Graph with correct labels (“Cost of unit” on vertical axis; “Quantity” on
horizontal axis)
1 point: Upward sloping MC curve plotted according to data, labeled “MC”
1 point: U-shaped ATC curve plotted according to the provided data,
labeled“ATC”
1 point: MC curve crossing at minimum of ATC curve (Note: We have simplified
this graph by drawing smooth lines between discrete points. If we had drawn
the MC curve as a step function instead, the MC curve would have crossed the
ATC curve exactly at its minimum point.)

558 section 10 Behind the Supply Curve: Profit, Production, and Costs