Read the description below, then in 1 to 2 pages, answer the following questions that follow.
The costs associated with producing six widgets are as follows: .80 variable cost per widget and .10 fixed cost per widget. Using this information, complete the following calculations:
What is the total cost of producing six widgets?
What is the average total cost of producing six widgets?
If the variable cost of producing five widgets is .60 and the fixed cost for producing five widgets is .10, what is the marginal cost of producing the sixth widget?
How would each of the following affect average total cost, average variable cost, and marginal cost?
An increase in the cost of the lease of the firm’s building
A reduction in the price of electricity
A reduction in wages
A change in the salary of the president of the company
Imagine 2 other situations that would affect the costs and explain their effects.
Present your calculations and assessments of the above situations in a 2-3 page report.
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Exercise Self Assessed
What does it mean to say there are no fixed costs in the long-run?