Consider an industry with two firms producing similar products. Each firm's total cost (in dollars)is given below. Mega Corp: TC = 5,000 + 100Q
Big Inc: TC = 4,000 + 200Q
For both firms, average total cost:
A)declines as quantity increases.
B)increases as quantity increases.
C)is constant for all quantities.
D)declines as quantity increases for Mega Corp and increases as quantity increases for Big Inc.

Question

Quizplus · Accepted Answer

For both firms, average variable cost is constant ($100 for Mega Corp and $200 for Big Inc), and average fixed cost falls as quantity rises. Thus, for both firms average total cost falls as quantity rises.

Consider an Industry with Two Firms Producing Similar Products