Answer to Question #144263 in Economics for Tshedi

Question

QUESTION FOUR [20]
4.1 Define the following cost curves according to the theory of the firm. Provide examples
wherever applicable:
4.1.1 Total fixed cost curve (4)
4.1.2 Total variable cost curve (4)
4.1.3 Long-run average cost curve (4)
4.2 Describe the demand curve of a perfectly competitive firm. (4)
4.3 Explain the nature of the goods produced by a monopolistically competitive firm. (4)

Answer 1

4.1.1 Total fixed cost curve shows the costs which are constant in the short run, so it is depicted as the horizontal line.

4.1.2 Total variable cost curve shows the costs that change according to the size of output produced, and is depicted as the upward-sloping curve.

4.1.3 The long-run average cost (LRAC) curve shows the firm's lowest cost per unit at each level of output, assuming that all factors of production are variable.

4.2 The demand curve of a perfectly competitive firm is a horizontal line

4.3 The goods produced by a monopolistically competitive firm are differentiated.