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CHAPTER 6
Review Questions
1. A downward sloping average cost curve reflects economies of scale since increased output of the firm lowers its unit costs.
a. Given that the firms fixed costs are $20 and the marginal cost of production is $2 per unit, how do average costs change as production increases from 5 to 10 to 20 to 40 units?
b. Discuss the intuition behind your response to part a.
c. In the figure below, graph the relationship between output, and average and marginal costs.
d. As output gets extremely large, what happens to average cost? Why?
e. What is the re
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