The Costs of Production

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# The Costs of Production
## Chapter 13
### Hussain Hadah
### University of Houston | 07 April 2022

---

# Table of contents

1. [Introduction](#intro)

2. [What Are Costs?](#sec1)

3. [Production and Costs](#sec2)

4. [Costs in the Short Run and in the Long Run](#sec3)

5. [Problems and Applications](#sec4)
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name: intro

# Introduction

---
# Firm Behavior

- So far, we have used the supply curve to interpret firms' production decisions

- According to the <span style="color:red;"> _law of supply_</span>, producers are willing to produce more as prices increase (explains the upward slope of the supply curve)

- We will discuss firms' decisions in more detail

- <span style="color:red;"> _Industrial organization_</span> is the study of how firms' decisions about prices and quantities depend on the market conditions they face

- To learn about the firms, we need to understand the costs of their production, which are primarily determined by prices

---
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name: sec1

# What Are Costs?

---
# Intoduction

<h3>
  <ul>
    <li>For this chapter, we will use Chloe's Cookie Factory as an example</li>
--
    <li>Chloe owns the firm</li>
--
    <li>She needs to buy the ingredients to make cookies (flour, sugar, etc.)</li>
--
    <li>She also hires workers to make cookies and run the machines</li>
--
    <li>Chloe sells the cookies to consumers</li>
  </ul>
</h3>

---
# Total revenue, total cost, and profit

- As economists, we assume that firms start businesses to maximize profit, which works well in most cases

--
- <span style="color:red;"> _Total revenue_</span> is the amount of money a firm receives for the of its output (cookies)

--
- <span style="color:red;"> _Total cost_</span> is the amount that a firm pays to buy inputs (labor, ingredients, ect.)

--
- <span style="color:red;"> _Profit_</span> is the total revenue minus total cost

$$
`\begin{equation}
\text{Profit} = \text{Total revenue} - \text{Total cost}
\end{equation}`
$$

--
- Chloe aims to maximize her profit

- Measuring total revenue is easy and is equal to the quantity of output produced times the price the output is sold at

- Measuring total cost is not as straightforward

---
# Costs as opportunity costs

- We learned that the <span style="color:red;"> _opportunity cost_</span> of an item refers to all the things that must be forgone to acquire that item

--
- When Chloe pays $1,000 for flour, it is also an <span style="color:red;"> _opportunity cost_</span> because she can no longer get it back to buy something else

- The wages Chloe pays are also a part of her costs

- Because these opportunity costs require the firm to pay out some money, they are called <span style="color:red;"> _explicit costs_</span>

- Some of the firm's _opportunity cost_ is called the <span style="color:red;"> _implicit costs_</span> which do not require a cash outlay

--
#### Example:

- Say Chloe can code and could earn $100 as a programmer
- For every hour Chloe spends making cookies, she is giving up a $100 in income

--
- Chloe's total cost is the sum of the <span style="color:red;"> _explicit costs_</span> and <span style="color:red;"> _implicit costs_</span>

---
# The cost of capital as opportunity cost

- An implicit cost of almost every business is the opportunity cost of the financial capital that has been invested in the business

--
#### Example:

- If Chloe bought the cookies business from a previous owner for $300,000

- Chloe could have put that money away in a savings account that pays 5% interest

- The $15,000---the interest on the money--- is one of Chloe's implicit costs

--
- The differentiation economists make between implicit and explicit costs highlights how different economists and accountants analyze a business

- An accountant will not show the $15,000 as a cost because no money is flowing out of the business to pay for it

---
<h1 style="font-size:28px">Example: the difference between economists and accountants</h1>

</br>

- Say Chloe only has $100,000

- Chloe borrows $200,000 from a bank at a 5% rate

- Chloe's accountant will count the $10,000 interest paid on a bank as a cost

- For an economist, the opportunity cost is still 15,000 = interest on the loan (explicit cost) + forgone interest on savings (implicit cost of 5,000)

---
# Economic vs Accounting Profit

$$
`\begin{align}
\text{Economic Profit} &= \text{Total Revenue} - \text{Explicit Cost} - \text{Implicit Cost} \\
\text{Accounting Profit} &= \text{Total Revenue} - \text{Explicit Cost} \\
\text{Economic Profit} &< \text{Accounting Profit}
\end{align}`
$$
<img src="images/image1.png" width="80%" height="80%" style="display: block; margin: auto;" />

---
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name: sec2

# Production and Costs

---
# Introduction

- A firm incurs costs when they produce a good or a service

- Assume that Chloe's factory size is fixed

- Chloe can increase the number of cookies produced by changing the number of workers

--
- This assumption is realistic in the short run but not in the long run

- Chloe cannot build a bigger store overnight because that takes time

- Our analysis in this section will describe the production decisions that Chloe makes in the short run

---
# The production function

---
# The production function (cont.)

---
# Definitions

### The <span style="color:red;"> _Marginal product_</span> of any input in the production process is the change in the quantity of output obtained from one additional unit of that input

### <span style="color:red;"> _Diminishing marginal product_</span> the property whereby the marginal product of an input declines as the quantity of the input increases

---
# Various Measures of Cost

---
# Various Measures of Cost (cont.)

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# Fixed and Variable Costs

### <span style="color:red;"> _Fixed costs_</span> do not vary with the quantity of output produced. A firm will have to pay them even if they produced nothing at all (e.g. rent)

### <span style="color:red;"> _Variable costs_</span> changes as the firm changes the quantity of output produced (e.g. inputs to production)

### <span style="color:red;"> _Total costs_</span> is the sum of the fixed and variable costs

---
# Average and Marginal costs

#### How much does it cost to make the typical cup of coffee?

#### How much does it cost to increase the production of coffee by 1 cup?

#### <span style="color:red;"> _Average total cost_</span> is the total cost divided by the quantity of output produced

#### <span style="color:red;"> _Average fixed cost_</span> is the fixed cost divided by the quantity of output produced

#### <span style="color:red;"> _Average variable cost_</span> is the variable cost divided by the quantity of output produced

#### <span style="color:red;"> _Marginal cost_</span> is the increase in total cost that arises from an extra unit of production

$$
`\begin{align}
ATC &= TC/Q \\
MC &= \Delta TC/\Delta Q
\end{align}`
$$

---
# Cost Curves and Their Shapes

---
# Typical cost curves

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# Costs in the Short Run and the Long Run

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# Relationship between SR and LR ATC
<img src="images/image8.png" width="80%" height="80%" style="display: block; margin: auto;" />

---
# Economies and Diseconomies of Scale

### <span style="color:red;"> _Economies of scale_</span> the property whereby long-run average total cost falls as the quantity of output increases

### <span style="color:red;"> _Diseconomies of scale_</span> the property whereby long-run average total cost rises as the quantity of output increases

---
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name: sec4

# Problems and Applications

---
# Question 1

#### This chapter discusses many types of costs: opportunity cost, total cost, fixed cost, variable cost, average total cost, and marginal cost. Fill in the type of cost that best completes each sentence:

--
#### What you give up in taking some action is called the _____

--
##### <span style="color:red;">opportunity cost</span>

--
#### _____ is falling when marginal cost is below it and rising when marginal cost is above it.

--
##### <span style="color:red;">average total cost</span>

--
#### A cost that does not depend on the quantity produced is a(n) _____.

--
##### <span style="color:red;">fixed cost</span>

--
#### In the ice-cream industry in the short run, _____ includes the cost of cream and sugar but not the cost of the factory..

--
##### <span style="color:red;">variable cost</span>

---
# Question 1

--
#### Profits equal total revenue minus _____

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##### <span style="color:red;">total cost</span>

--
#### The cost of producing an extra unit of output is the _____

--
##### <span style="color:red;">marginal cost</span>

---
# Question 2

#### Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant

--
#### Define opportunity cost

##### The <span style="color:red;">opportunity cost</span> of something is what must be given up to acquire it

--
#### What is your aunt’s opportunity cost of running the hardware store for a year? If your aunt thinks she can sell $510,000 worth of merchandise in a year, should she open the store? Explain.

--
##### Cost of rent and stocks is $500,000 (explicit cost)

--
##### Cost of quitting the job is $50,000 (implicit cost)

--
##### The  opportunity cost = $550,000—consisting of $500,000 to rent the store and buy the stock and a $50,000 implicit cost

--
##### Your aunt should not open the store

--
##### `$\text{Ecnomic profit} = 510,000 - 550,000 = -40,000 < 0$`

---
# Question 3

#### A commercial fisherman notices the following relationship between hours spent fishing and the quantity of fish caught:

| Hours | Fish |
|-------|------|
| 0     | 0    |
| 1     | 10   |
| 2     | 18   |
| 3     | 24   |
| 4     | 28   |
| 5     | 30   |

--
#### What is the marginal product of each hour spent fishing?

---
# Question 3

#### What is the marginal product of each hour spent fishing?

</br>

| Hours | Fish | Marginal Product of Fishing |
|-------|------|-----------------------------|
| 0     | 0    | -                           |
| 1     | 10   | 10                          |
| 2     | 18   | 8                           |
| 3     | 24   | 6                           |
| 4     | 28   | 4                           |
| 5     | 30   | 2                           |

---
# Question 3

#### Use these data to graph the fisherman’s production function. Explain its shape.

--
<img src="Ch13_files/figure-html/unnamed-chunk-10-1.png" width="748px" style="display: block; margin: auto;" />
---
# Question 3

#### The fisherman has a fixed cost of $10 (his pole). The opportunity cost of his time is $5 per hour. Graph the fisherman’s total-cost curve. Explain its shape

</br>

| Hours | Fish | Fixed Cost | Variable Cost | Total Cost | Marginal Product of Fishing |
|-------|------|------------|---------------|------------|-----------------------------|
| 0     | 0    | 10         | 0             | 10         | -                           |
| 1     | 10   | 10         | 5             | 15         | 10                          |
| 2     | 18   | 10         | 10            | 20         | 8                           |
| 3     | 24   | 10         | 15            | 25         | 6                           |
| 4     | 28   | 10         | 20            | 30         | 4                           |
| 5     | 30   | 10         | 25            | 35         | 2                           |

---
# Question 3

#### The fisherman has a fixed cost of $10 (his pole). The opportunity cost of his time is $5 per hour. Graph the fisherman’s total-cost curve. Explain its shape

--
<img src="Ch13_files/figure-html/unnamed-chunk-11-1.png" width="748px" style="display: block; margin: auto;" />

---
# Question 4

#### Nimbus, Inc., makes brooms and then sells them door-to-door. Here is the relationship between the number of workers and Nimbus’s output during a given day:

</br>

| Workers | Output | Marginal Product | Total Cost | Average total cost | Marginal Cost |
|---------|--------|------------------|------------|--------------------|---------------|
| 0       | 0      |                  |            |                    |               |
| 1       | 20     |                  |            |                    |               |
| 2       | 50     |                  |            |                    |               |
| 3       | 90     |                  |            |                    |               |
| 4       | 120    |                  |            |                    |               |
| 5       | 140    |                  |            |                    |               |
| 6       | 150    |                  |            |                    |               |
| 7       | 155    |                  |            |                    |               |

---
# Question 4

##### Fill in the column of marginal products. What pattern do you see? How might you explain it?

| Workers | Output | Marginal Product | Total Cost | Average total cost | Marginal Cost |
|---------|--------|------------------|------------|--------------------|---------------|
| 0       | 0      | -                |            |                    |               |
| 1       | 20     | 20               |            |                    |               |
| 2       | 50     | 30               |            |                    |               |
| 3       | 90     | 40               |            |                    |               |
| 4       | 120    | 30               |            |                    |               |
| 5       | 140    | 20               |            |                    |               |
| 6       | 150    | 10               |            |                    |               |
| 7       | 155    | 5                |            |                    |               |

---
# Question 4

##### A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the column for total cost.

| Workers | Output | Marginal Product | Total Cost | Average total cost | Marginal Cost |
|---------|--------|------------------|------------|--------------------|---------------|
| 0       | 0      | -                |            |                    |               |
| 1       | 20     | 20               |            |                    |               |
| 2       | 50     | 30               |            |                    |               |
| 3       | 90     | 40               |            |                    |               |
| 4       | 120    | 30               |            |                    |               |
| 5       | 140    | 20               |            |                    |               |
| 6       | 150    | 10               |            |                    |               |
| 7       | 155    | 5                |            |                    |               |

---
# Question 4

##### A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the column for total cost.
| Workers | Output | Marginal Product | Fixed Cost | Variable Cost | Total Cost | Average total cost | Marginal Cost |
|---------|--------|------------------|------------|---------------|------------|--------------------|---------------|
| 0       | 0      | -                | 200        | 0             |            |                    |               |
| 1       | 20     | 20               | 200        | 100           |            |                    |               |
| 2       | 50     | 30               | 200        | 200           |            |                    |               |
| 3       | 90     | 40               | 200        | 300           |            |                    |               |
| 4       | 120    | 30               | 200        | 400           |            |                    |               |
| 5       | 140    | 20               | 200        | 500           |            |                    |               |
| 6       | 150    | 10               | 200        | 600           |            |                    |               |
| 7       | 155    | 5                | 200        | 700           |            |                    |               |

---
# Question 4

##### A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the column for total cost.

| Workers | Output | Marginal Product | Fixed Cost | Variable Cost | Total Cost | Average total cost | Marginal Cost |
|---------|--------|------------------|------------|---------------|------------|--------------------|---------------|
| 0       | 0      | -                | 200        | 0             |    200     |                    |               |
| 1       | 20     | 20               | 200        | 100           |    300     |                    |               |
| 2       | 50     | 30               | 200        | 200           |    400     |                    |               |
| 3       | 90     | 40               | 200        | 300           |    500     |                    |               |
| 4       | 120    | 30               | 200        | 400           |    600     |                    |               |
| 5       | 140    | 20               | 200        | 500           |    700     |                    |               |
| 6       | 150    | 10               | 200        | 600           |    800     |                    |               |
| 7       | 155    | 5                | 200        | 700           |    900     |                    |               |

---
# Question 4

##### Fill in the column for average total cost. (Recall that `$ATC=TC/Q$`) What pattern do you see?

| Workers | Output | Marginal Product | Fixed Cost | Variable Cost | Total Cost | Average total cost | Marginal Cost |
|---------|--------|------------------|------------|---------------|------------|--------------------|---------------|
| 0       | 0      | -                | 200        | 0             | 200        | -                  |               |
| 1       | 20     | 20               | 200        | 100           | 300        | 15                 |               |
| 2       | 50     | 30               | 200        | 200           | 400        | 8                  |               |
| 3       | 90     | 40               | 200        | 300           | 500        | 5.56               |               |
| 4       | 120    | 30               | 200        | 400           | 600        | 5                  |               |
| 5       | 140    | 20               | 200        | 500           | 700        | 5                  |               |
| 6       | 150    | 10               | 200        | 600           | 800        | 5.33               |               |
| 7       | 155    | 5                | 200        | 700           | 900        | 5.81               |               |

---
# Question 4

##### Now fill in the column for marginal cost. (Recall that MC=ΔTC/ΔQ.) What pattern do you see?

| Workers | Output | Marginal Product | Fixed Cost | Variable Cost | Total Cost | Average total cost | Marginal Cost |
|---------|--------|------------------|------------|---------------|------------|--------------------|---------------|
| 0       | 0      | -                | 200        | 0             | 200        | -                  |    -          |
| 1       | 20     | 20               | 200        | 100           | 300        | 15                 |   5.00        |
| 2       | 50     | 30               | 200        | 200           | 400        | 8                  |   3.33        |
| 3       | 90     | 40               | 200        | 300           | 500        | 5.56               |   2.50        |
| 4       | 120    | 30               | 200        | 400           | 600        | 5                  |   3.33        |
| 5       | 140    | 20               | 200        | 500           | 700        | 5                  |   5.00        |
| 6       | 150    | 10               | 200        | 600           | 800        | 5.33               |   10.0        |
| 7       | 155    | 5                | 200        | 700           | 900        | 5.81               |   20.0        |

---
# Question 4

| Workers | Output | Marginal Product | Fixed Cost | Variable Cost | Total Cost | Average total cost | Marginal Cost |
|---------|--------|------------------|------------|---------------|------------|--------------------|---------------|
| 0       | 0      | -                | 200        | 0             | 200        | -                  |    -          |
| 1       | 20     | 20               | 200        | 100           | 300        | 15                 |   5.00        |
| 2       | 50     | 30               | 200        | 200           | 400        | 8                  |   3.33        |
| 3       | 90     | 40               | 200        | 300           | 500        | 5.56               |   2.50        |
| 4       | 120    | 30               | 200        | 400           | 600        | 5                  |   3.33        |
| 5       | 140    | 20               | 200        | 500           | 700        | 5                  |   5.00        |
| 6       | 150    | 10               | 200        | 600           | 800        | 5.33               |   10.0        |
| 7       | 155    | 5                | 200        | 700           | 900        | 5.81               |   20.0        |

- Compare the column for marginal product with the column for marginal cost. Explain the relationship.

--
- When marginal product is rising, marginal cost is falling, and _vice versa_

---
# Question 4

| Workers | Output | Marginal Product | Fixed Cost | Variable Cost | Total Cost | Average total cost | Marginal Cost |
|---------|--------|------------------|------------|---------------|------------|--------------------|---------------|
| 0       | 0      | -                | 200        | 0             | 200        | -                  |    -          |
| 1       | 20     | 20               | 200        | 100           | 300        | 15                 |   5.00        |
| 2       | 50     | 30               | 200        | 200           | 400        | 8                  |   3.33        |
| 3       | 90     | 40               | 200        | 300           | 500        | 5.56               |   2.50        |
| 4       | 120    | 30               | 200        | 400           | 600        | 5                  |   3.33        |
| 5       | 140    | 20               | 200        | 500           | 700        | 5                  |   5.00        |
| 6       | 150    | 10               | 200        | 600           | 800        | 5.33               |   10.0        |
| 7       | 155    | 5                | 200        | 700           | 900        | 5.81               |   20.0        |

- Compare the column for average total cost with the column for marginal cost. Explain the relationship.

--
- When marginal cost is less than average total cost, average total cost is falling; the cost of the last unit produced pulls the average down. When marginal cost is greater than average total cost, average total cost is rising; the cost of the last unit produced pushes the average up

---
# Question 5

##### You are the chief financial officer for a firm that sells phones. Your firm has the following average-total-cost schedule:

|Quantity| Average Total Cost|
|--------|-------------------|
|600     |300                |
|601     |301                |

--
##### Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your phones. The caller offers you $550 for it. Should you accept the offer? Why or why not?

--
##### At `$Q = 600$` phones, `$TC = 600 \times 300 = 180,000$`

--
##### At `$Q = 601$` phones, `$TC = 601 \times 301 = 180,901$`

--
##### Marginal cost of one extra phone is `$901$`

--
##### Should not accept offer because `$MC_{601} = 901 > 550$`

---
# Question 6

##### Consider the following cost information for a pizzeria:

| Quantity| Variable Cost | Total Cost |
|---------|---------------|------------|
| 0       | 0             | 300        |
| 1       | 50            | 350        |
| 2       | 90            | 390        |
| 3       | 120           | 420        |
| 4       | 150           | 450        |
| 5       | 190           | 490        |
| 6       | 240           | 540        |

--
##### What is the pizzeria’s fixed cost?

--
##### `$TC = VC + FC$`, we know VC and we have the TC `$\rightarrow$` `$FC = TC - VC$`

--
##### At `$Q = 0$`, `$FC = 300 - 0 = 300$`

---
# Question 6

##### Construct a table in which you calculate the marginal cost per dozen pizzas using the information on total cost. Also, calculate the marginal cost per dozen pizzas using the information on variable cost. What is the relationship between these sets of numbers? Explain.

| Quantity| Variable Cost | Total Cost |Marginal Cost (using total cost)|Marginal Cost (using variable cost)|
|---------|---------------|------------|--------------------------------|--------------------------------|
| 0       | 0             | 300        |      -                         |       -                        |
| 1       | 50            | 350        |     50                         |      50                        |
| 2       | 90            | 390        |     40                         |      40                        |
| 3       | 120           | 420        |     30                         |      30                        |
| 4       | 150           | 450        |     30                         |      30                        |
| 5       | 190           | 490        |     40                         |      40                        |
| 6       | 240           | 540        |     50                         |      50                        |

- Marginal cost equals the change in total cost for each additional unit of output. It is also equal to the change in variable cost for each additional unit of output. This relationship occurs because total cost equals the sum of variable cost and fixed cost and fixed cost

---
# Question 6

- `$MC = \Delta TC/\Delta Q = \Delta (FC + VC)/\Delta Q = (\Delta FC + \Delta  VC)/\Delta Q = \Delta  VC/\Delta Q$`
- `$MC = \delta TC/\delta Q = \delta (FC + VC)/\delta Q = (\delta FC + \delta VC)/\delta Q \text{ where } \delta FC/\delta Q = 0$`

---
# Question 7

#### Your cousin Vinnie owns a painting company with fixed costs of $200 and the following schedule for variable costs:

| Quantity | VC  | FC | TC | AFC | AVC | ATC |
|----------|-----|----|----|-----|-----|-----|
| 0        | 0   |    |    |     |     |     |
| 1        | 10  |    |    |     |     |     |
| 2        | 20  |    |    |     |     |     |
| 3        | 40  |    |    |     |     |     |
| 4        | 80  |    |    |     |     |     |
| 5        | 160 |    |    |     |     |     |
| 6        | 320 |    |    |     |     |     |
| 7        | 640 |    |    |     |     |     |

Calculate average fixed cost, average variable cost, and average total cost for each quantity. What is the efficient scale of the painting company?

---
# Question 7

##### Calculate average fixed cost, average variable cost, and average total cost for each quantity. What is the efficient scale of the painting company?

| Quantity | VC  | FC  | TC  | AFC   | AVC   | ATC   |
|----------|-----|-----|-----|-------|-------|-------|
| 0        | 0   | 200 | 200 |       |       |       |
| 1        | 10  | 200 | 210 | 200   | 10    | 210   |
| 2        | 20  | 200 | 220 | 100   | 10    | 110   |
| 3        | 40  | 200 | 240 | 66.67 | 13.33 | 80    |
| 4        | 80  | 200 | 280 | 50    | 20    | 70    |
| 5        | 160 | 200 | 360 | 40    | 32    | 72    |
| 6        | 320 | 200 | 520 | 33.33 | 53.33 | 86.67 |
| 7        | 640 | 200 | 840 | 28.57 | 91.43 | 120   |

---
# Question 8

#### The city government is considering two tax proposals:

1. A lump-sum tax of $300 on each producer of hamburgers.

2. A tax of $1 per burger, paid by producers of hamburgers.

--
#### Which of the following curves—average fixed cost, average variable cost, average total cost, and marginal cost—would shift as a result of the lump-sum tax? Why? Show this in a graph. Label the graph as precisely as possible.

--
- The lump-sum tax causes an increase in fixed cost. Therefore, as Figure 10 shows, only average fixed cost and average total cost will be affected.

---
# Question 8

#### The city government is considering two tax proposals:

1. A lump-sum tax of $300 on each producer of hamburgers.

2. A tax of $1 per burger, paid by producers of hamburgers.

--
#### Which of these same four curves would shift as a result of the per-burger tax? Why? Show this in a new graph. Label the graph as precisely as possible.

--
- Average variable cost, average total cost, and marginal cost will all be greater. Average fixed cost will be unaffected.

---
# Question 9

#### Jane’s Juice Bar has the following cost schedules:

- Calculate average variable cost, average total cost, and marginal cost for each quantity.

| Quantity | Variable Cost |	Total Cost	| Average Variable Cost |	Average Total Cost	| Marginal Cost |
|---|---|---|---|---|---|
|0|	0.00	|    30.00|	      |       |      |
|1|	10.00	|    40.00|	10.00 | 	40.0| 10.00|
|2|	25.00	|    55.00|	12.50	| 27.50	| 15.00|
|3|	45.00	|    75.00|	15.00	| 25.00	| 20.00|
|4|	70.00	|   100.00|	17.50	| 25.00	| 25.00|
|5|	100.00| 	130.00|	20.00	| 26.00	| 30.00|
|6|	135.00| 	165.00|	22.50	| 27.50	| 35.00|

---
# Question 9

#### Jane’s Juice Bar has the following cost schedules:

- Graph all three curves. What is the relationship between the marginal-cost curve and the average-total-cost curve? Between the marginal-cost curve and the average-variable-cost curve? Explain.

--
<img src="images/ques9b.png" width="40%" height="40%" style="display: block; margin: auto;" />

- The marginal-cost curve is below the average-total-cost curve when output is less than four and average total cost is declining
- The marginal-cost curve is above the average-total-cost curve when output is above four and average total cost is rising
- The marginal-cost curve lies above the average-variable-cost curve.

---
# Question 10

#### Consider the following table of long-run total costs for three different firms:

#### Does each of these firms experience economies of scale or diseconomies of scale?

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