Micro and Macro Theory and Applicatin

F7J6 35: Economic 1: Micro and Macro Theory and Applicatin

Assessment 3

Assessor: Palidan

Class: Business 162

SCN: 187116740

Candidate’s Name: Neng Wan

Assessment Length: 993 words

Submitted Date: 28/3/2018

1.In the theory of the there is a distinction between cost curves in the short-run and cost curves in the long run. Making reference to this distinction and with the aid of at least one relevant diagram explain each of the following costs:

a Average variable cost

b Average fixed cost

c Average total cost

a: The average variable cost is the total variable cost per unit of output. This is found by dividing total variable cost by total output . Total variable cost is all the costs that vary with output, such as materials and labor. Profit-maximizing firms will use the AVC to determine at what point they should shut down production in the short run. As long as price is above the AVC and covering some of the fixed costs, you are better off continuing production. If the price falls below the AVC, then the firm may decide to shut down production in the short run.

b: Average fixed cost :Total fixed cost per unit of output, found by dividing total fixed cost by the quantity of output. Fixed costs are those costs incurred that do not vary with production; they are fixed at a certain price no matter how much is produced. When compared with price ,average fixed cost indicates whether or not a profit-maximizing firm should shutdown production in the short run.

c: The average total cost is referred to as the per unit total cost since it is calculated by taking the total cost of production and dividing that by the number f units produced.

With the aid of relevant diagrams, describe the characteristics , price and output behaviour of a perfectly competitive market and a monopoly, and compare the two market structures.

Characteristics of perfect competition: In perfect competition, there is a large number of buyers and sellers of the commodity. And freedom of entry and exit to the market for buyers and sellers.No sellers or buyers has control over price ,and all