StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

# Not long ago, the Canadian edition of a famous textbook on principles of economics had a diagram depicting a U-shaped average fixed cost curve - Essay Example

Comments (0) Cite this document
Summary
This occasioned great mirth around the campfires of some economists in the Great White North and did much to shorten a long hard…
Read Text Preview

## Extract of sample "Not long ago, the Canadian edition of a famous textbook on principles of economics had a diagram depicting a U-shaped average fixed cost curve"

Question Not long ago, the Canadian edition of a famous textbook on principles of economics had a diagram depicting a U-shaped average fixed cost curve. This occasioned great mirth around the campfires of some economists in the Great White North and did much to shorten a long hard winter. Explain what is wrong with drawing a U-shaped average fixed cost curve.
Answer
Cost minimizing firms’ total cost (TC) curves can be given as;
TC1 =wL1+rK1⃓ (Q= Q1)
TC2=WL2+rK2 ⃓ (Q= Q2)
where, TC1 provides an isocost line (Besanko and Ronald 2005).
Above TC1 is the minimum cost of producing a given amount of output (Q1) by using different combinations of inputs which are labor (L1) and capital (K1). Along the curve, firm’s output level stays constant. When the firms increase level of output its total cost increase while shifting TC1 to TC2. In the long run firms can mobilize all the inputs used in production process.
Firm’s average cost (AC) is the ratio of total cost to level of outputs and AC curve is given by;
AC (Q) = TC (Q)/Q
Thus U-shaped AC and MC curves can be obtained as figure 1 below (AmosWEB).
Figure 1: Long Run Total, Average and Marginal Cost Curves
TC

AC(Q)=TC(Q)/Q
In the short run firms face two types of costs as fixed cost (FC) and variable cost (VC). Thus TC of firm in short run is given as;
TC1 =VC1+ FC ⃓ Q=Q1
TC2 =VC2+ FC ⃓ Q=Q2
Firm’s fixed cost derives from the recourses which it cannot be mobilized. Cost of fixed resources is not varied upon varying output levels. Thus stays constant in above two cost functions. Average fixed cost is the ratio of firms’ fixed cost and level of output which can be given as;
AFC= FC/Q
where AFC is a constant. Therefore firms’ average fixed cost continuously decreases with increasing output level. As depicted in figure 2 AFC is not a U shaped curve (Riley and Eton 2012).
Figure 2: Short Run AFC of Cost Minimizing Firms.

In conclusion cost minimizing firms’ AC curve can be illustrated using U-shaped curve. Firms’ FC is a constant value in the short run and hence AFC curve continuously decreases with increasing output level.
References
Besanko, David, and Ronald Braeutigam.2005.Cost Curves. In Microeconomics. 2th ed. Edited by Judith R.Joseph. New Jersey
Riley, Geoff, and Eton College. 2012."Markets & Market Systems." tutor2u. www.tutor2u.net/economics/revision-notes/a2-micro-supply-shortrun-costs.html.
AmosWEB. 2012.”Economics with a touch of Whimsy” http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=U-shaped+cost+curves. Read More
Tags
Cite this document
• APA
• MLA
• CHICAGO
(“Not long ago, the Canadian edition of a famous textbook on principles Essay”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1603872-not-long-ago-the-canadian-edition-of-a-famous-textbook-on-principles-of-economics-had-a-diagram-depicting-a-u-shaped-average-fixed-cost-curve
(Not Long Ago, the Canadian Edition of a Famous Textbook on Principles Essay)
https://studentshare.org/macro-microeconomics/1603872-not-long-ago-the-canadian-edition-of-a-famous-textbook-on-principles-of-economics-had-a-diagram-depicting-a-u-shaped-average-fixed-cost-curve.
“Not Long Ago, the Canadian Edition of a Famous Textbook on Principles Essay”, n.d. https://studentshare.org/macro-microeconomics/1603872-not-long-ago-the-canadian-edition-of-a-famous-textbook-on-principles-of-economics-had-a-diagram-depicting-a-u-shaped-average-fixed-cost-curve.
Comments (0)
Click to create a comment or rate a document

## CHECK THESE SAMPLES OF Not long ago, the Canadian edition of a famous textbook on principles of economics had a diagram depicting a U-shaped average fixed cost curve

### Average and Marginal Cost, and Average and Marginal Revenue

...? Economics for Business: Individual Portfolio of the Institute Appears Here Appears Here Total Word Length: Question a) Average and marginal cost, and average and marginal revenue in the given scenario is not one, rather varies according to the production level (Mankiw, 1998). Therefore, Average and marginal cost, and average and marginal revenue are calculated for each production level and tabulated below: Average and Marginal Cost Volume Total Costs Average Cost Marginal Cost 1 13 13.0 12 2 24 12.0 11 3 33 11.0 9 4 40 10.0 7 5 50 10.0 10 6 66 11.0 16 7 94 13.4 28 8 104 13.0 10 9 126 14.0 22 10 150 15.0 24 Average and Marginal Revenue Volume Total Revenue Average Revenue Marginal Revenue 1 27 27.0 27 2 53 26.5 26 3 78 26.0 25 4 102 25.5...
5 Pages (1250 words) Assignment

### Short-run Phillips curve & the long-run Phillips curve

...? Unit VII Assessment Unit VII Assessment Question Explain how the short-run Phillips curve, the long-run Phillips curve, the short-run aggregate supply curve, the long-run aggregate supply curve, and the natural rate hypothesis are all related. How do active and passive views of these concepts differ? The Philips Curves are fundamental to the study of economics. The Curves represent the relationship between inflation and unemployment rates and, they have cross relationships with aggregate supply curves. Both the long-run Philips Curve and long-run supply curves are vertical. This reveals that monetary policies only affect nominal variables but have minimal effect on real variables such as unemployment and output. In the long-run...
3 Pages (750 words) Essay

### Canadian economics

... costs in U.S. manufacturing are about \$21.50 U.S.), this creates a nominal unit labor cost disadvantage (measured in national currencies) that must be offset by the exchange rate between the two currencies. When the Canadian dollar trades at approximately 72 cents U.S., average manufacturing unit labor costs in the two countries are equalized. If the dollar is above that level, therefore, Canadian manufacturing (on average) faces a unit cost disadvantage that will spark the long-run outward migration of investment and employment (the opposite of what occurred in the late 1990s when the Canadian dollar traded for less than 72 cents U.S.). The Rising Canadian Dollar and its Impact on the Canadian Auto Industry, Testimony of Jim Stanford...
10 Pages (2500 words) Essay

### Average Cost Curves

... up sharply as marginal costs exceed the total average cost. As new production facilities are added and the SRAC is enveloped into the LRAC curve, and the LRAC takes on the shape of a gradually sloped U. References McCain, R. A. (2005). Essential principles of economics: A hypermedia text. Washington, DC: Heldref Publications. Retrieved August 28, 2006, from http://william-king.www.drexel.edu/top/prin/txt/EcoToC.html Tucker, I. B. (2000). Microeconomics for today (2nd ed.). Cincinnati, OH: South-Western College Publishing....
4 Pages (1000 words) Case Study

### Canadian public economics policy

...Question In Canada, government spending is the highest contributor to gross domestic product (GDP). In 2000, it constituted 42.6 percent of GDP -an increase from only 18.7 percent in 1950, based on 1997 real terms. This measure, however, is not a reliable measure of the size of government because it cannot capture the full extent of government influence. GDP, defined as total domestic value of expenditures in domestically sold goods and services, accounts for household consumption, investments, government spending, and net exports. While this measures the total economic activity in a country, it cannot predict the behaviour of all economic actors, making it an imperfect indicator of the size of a government. Government spending has been...
3 Pages (750 words) Essay

### Weighted Average Cost of Capital (WACC)

nologies Incorporated), principally involved in the integration of radiology images information into healthcare enterprise networks improving radiology workflow efficiencies, reduces operating costs and improves medical decision making processes.
Thomson One (2004) will be utilized on this financial analysis process for it provides a complete presentation of various companies’ profile, financial statements, and past and projected operations that are very useful to investors, creditors, and other business entities as well for financial analysis purposes prior to business acquisition, purchase, merger, or investment undertakings.
Thomson One exhibited quantitative information of the 3-year business operations of Siemens Medi...
5 Pages (1250 words) Essay

### Economics of Canadian Immigration

... prominently. The Quebec separatist movement and the emergence of conservatism especially in the west are some of the issues that have had great impacts on the Canadian political culture especially in the last two decades (Little 112-125). The propositions in the Quebec agenda and the differences in these policies in relation to the federal policies that define the rest of Canada are indeed topical issues that greatly define the political culture in Canada. The Quebec separatists’ need to secede from the greater Canada was an issue that did not go down well with the Canadian government (Wiley 32). The fundamental concept that arises in the Canadian political analysis is the concept of immigration to Canada and its effects in shaping...
2 Pages (500 words) Essay

### Opportunity cost direct and indirect cost.&marginal cost, average cost and sunk cost

...Opportunity cost, direct and indirect cost, marginal cost, average cost and sunk cost Q1. In an opportunity cost situation, indirect costs are greater than the direct costs. Two months ago, I would have earned \$50 to work for five straight rush hours. The work required watching a neighbor’s store. However, I preferred watching the Justin Beeber concert. The concert cost was \$20. The transportation cost to attend the popular Justin Beeber concert was \$15. The concert costs are direct cost. Evidently, the \$50 indirect costs are greater than the preferred direct concert attendance cost, \$35. Direct costs are attributed to a specific activity, watching the concert (Geetika220). Foregone opportunity cost is the cost of the discarded cost...
2 Pages (500 words) Assignment

### Healthcare Factors behind Cost Curve and Supply Curve

... with additional infrustructure to accomodate the large number of patients seeking services from them. Directly, this will lead to increased costs by the healthcare department in the country which the reflects in the gross national product. In the coming years, access to quality healthcare will be very costly to citizens of all economic backgrounds. References Hicks, L. (2014). Economics of Health and Medical Care: 6th edition. Burlington: MA: Jones & Barlett Learning, LLC....
2 Pages (500 words) Coursework

### Fixed Income Securities

The computation of the term structure is considered as one of the most difficult computational tasks as the researchers and academics face an uphill task of clearly and accurately determine the relationship between the two. The yield curve is often used to plot the term structure, however, with continuous changing in the term structure; the overall shape of the yield curve can change too depending upon the exact relationship between the interest rates and the maturity of the fixed-income securities.
As discussed above that the accurate description and computation of term structure is different therefore there have been different models of term structure which attempt to define the relationship between the maturity and the int...
6 Pages (1500 words) Coursework

### An Evaluation of the Role That the Principles of Behaviour Therapy Have to Play in Clinical Hypnosis

Hamburg (2006) first used this combined effort to treat two patients who were scared of dying. He uses his paper to encourage clinicians to refrain from not using their knowledge at the introductory classes of hypnosis but to go into it deeper. Many therapists at that time were taking the bold step of combining behavior therapy with hypnosis (Chaves, 2006). One group used hypnosis for desensitization therapy (Kirsch et al, 1995). However, there was general disagreement about the manner of hypnosis being employed and the methods of mentalist constructs. Chaves who strongly believed in the treatment combination used it as a base for many of his therapeutic interventions (Chaves, 1997a as cited in Chaves, 2006). The hypnotic therapy...
8 Pages (2000 words) Article

### Real Cost of Capital

Also, other academics criticize the models' failure to incorporate other determinants of risks such as firm size, book-to-market ratio, etc. then the plain correlation of the risk of the assets to the market. Despite these criticisms, many practitioners in the corporate world still use CAPM for capital budgeting. These issues are probed in this paper.
CAPM or the capital asset pricing model has been a tool in modern finance that has been extensively used for capital budgeting. The capital asset pricing model is useful in estimating the required return on an equity stock of a company (Perold 2004). Under the principle of finance that rational investors will require higher returns to compensate them when they undertake projects...
8 Pages (2000 words) Assignment

### Weighted Average Cost of Capital

...Table of Contents Table of Contents Research Question 2 Cost of Capital 2 Capital Components 3 Debt Financing 3 Common Stock 5 Preferred Stock 5 Optimal Debt-Equity level 6 Advantages and disadvantage 6 Conclusion 7 Research Question ‘Which sources of financing can a company employ and in what optimal debt-equity combination?’ Cost of Capital A pivotal decision for any financial manager is the cost of capital employed to finance assets. This is usually represented by a measure known as WACC (Weighted Average Cost of Capital). The understanding of Wacc for managers is very important, because it represents a major component in cost of doing business. Cost here doesn’t only refer to finance cost but in fact describes the return expected...
6 Pages (1500 words) Research Paper

### Introductory Economics and Finance: Why Governments Regulate Firms and Markets

By government regulation, it is meant by the rules administered by a government or government agency to influence any economic activity which determines the price, types, and standards of products, and most importantly the conditions under which the entry and exit of the firms are possible.

Like death, it is impossible to keep away from regulation in about every aspect of daily life. The business regulation may be classified into two- economic and social (Litan). The economic regulation deals with price controls and the entry limits of the firms into markets. The second type regulation mostly deals with externalities (the outside influences of the company or firm which may or may not be decided by them)

Examp...
6 Pages (1500 words) Assignment

### Overhead Cost

Daggle (2009) asserts that “overhead costs are costs related to manufacturing which do not add intrinsic value to the product”. Boudreau (2009) asserts that “the obvious overhead costs include things such as rent, advertising, utilities, insurance, and office supplies. These basic expenses have no direct concern with the company’s products and services but they are required for the production of the products and services.
For example, if a company manufactures cars, then the overhead costs are those expenses which occur during the production of a car like employee salaries, bills, rent of the premises, etc. Blocker (2007) found that overhead costs include all indirect expenses which occur during the pr...
6 Pages (1500 words) Assignment

### Marketing Research and Its Ethical Principles

Many ethical questions are attached to market research in today’s world. Many ethical violations are taking place to achieve various motives like minimizing research costs through lack of informed consent of participants, violation of rights of the respondents, use of unauthorized information, confidentiality violations, making false statements and promises, etc. this paper will specifically focus on ethical issues about the Rights of the Respondents of marketing research.
Deontology suggests that people should fully comply with their obligations and responsibilities when it comes to ethically analyzing any situation. These obligations and responsibilities of the analyst may be towards a particular person, a group or co...
6 Pages (1500 words) Research Paper

### The 1846 Invasion into Mexico by the U. S.: The Political and Economic Forces that Brought about the Invasion

Some of the territories led to a war with Mexico from which the United States emerged victorious, expanding its territories and decisively establishing its dominance in North America.

President Andrew Jackson led an example of an administration that set the stage for the way in which James Polk would lead. In 1817, as a still yet military leader, Jackson led the United States into the first of three conflicts with the Seminole Indians from which the acquisition of Florida from Spain would be negotiated and finalized. The situation with Spain was tenuous and should have been dealt with in a diplomatic and cautious manner, but in 1817 President Monroe wrote a letter to General Jackson stating that “Great interests...
8 Pages (2000 words) Article

### Greatest Long Term Threat to the UKs National Security

The UK is one of the major countries which are targeted by terrorists. Apart from terrorism, the UK is currently facing many other threats. According to a written ministerial statement by the Prime Minister of UK on the National Security Strategy Progress Report submitted to Parliament on 22 March, the nature of the threats UK face currently are from piracy and cybercrime to terrorism and nuclear proliferation (Statement on National Security Strategy, 2010, p.1). This paper briefly analyses the various types of security threats the UK is facing at present.

The UK is facing both internal and external threats from terrorist groups. If Al-Qaida is the major external threat for UK’s securities, various Irish republica...
6 Pages (1500 words) Coursework

### Economics: Public Utilities

The degree of capital intensity simply put is the ratio of the total money value of the equipment as compared to the total production output potential. Generally, capital intensive industries give a very high rate of return which in turn generates very high profits. The higher rate of return and profits leads to very high re-investment into these industries. The benefit of higher capital investment is that the industry can equip itself with better and more hi-tech equipment and essential tools and this use of advanced technology, in turn, leads to higher productivity. These industries possess the power to generate much higher profits which leads to a higher standard of living.

On the other hand capital, intensive indust...
7 Pages (1750 words) Assignment

### A Quantity Surveyor as a Cost Guru

Charges are frequently made against profes¬sionals such as poor service quality, irresponsible servicing attitude, professional negligence and denial of fault. Increasingly, stringent public expectations of ‘value for money’ are very common and are understandable during economic hard times. Some are reasonable and some are not, even though sometimes it is very difficult to distinguish right from wrong during the daily practice of professionals. Nonetheless, the interests of the general public are still the ultimate baseline that professionals are striving for. To achieve this, an understanding of the expectations of the general public and the ethical behavior of quantity surveying profes­sionals is the pre-requ...
6 Pages (1500 words) Article
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Contact Us