Question
What is the behaviour of:
- Average Fixed Cost.
- Average Variable Cost as more and more units of a good are produced?
TFC is always constant. Therefore, when units of goods produced increases, Average fixed cost always falls.
$\text{Average Variable Cost}=\frac{\text{Total Variable Cost}}{\text{Units of goods produced}}$
TVC first increases at decreasing rate and gradually increases at an increasing rate. Therefore, average variable cost first decreases, reaches its minimum and after reaching its minimum starts rising as more and more units of goods are produced.
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$\text{q}^\text{D}=700-\text{p}$
$\text{q}^\text{s}=500+3\text{p for p}\geq15$
$=0\text{ for }0\leq\text{p}<15$
Assume that the market consists of identical firms. Identify the reason behind the market supply of commodity X being zero at any price less than Rs. 15. What will be the equilibrium price for this commodity? At equilibrium, what mquantity of X will be produced?| Price (P) (₹) | 6 | 7 | 8 |
| Units sold (Q) | 5 | 4 | 3 |