1. Arrows up or down. When marginal cost is less than average cost, an increase in output_____ average cost. When marginal cost exceeds average cost, an increase in _____output average cost.
2. The short-run average cost of production is the same for two different quantities. _____ (True/False)
3. Compute the Costs. Consider a firm that has a fixed cost of $60. Complete the following table:

4. Changing Costs. Consider the paddle production example shown in Table Compute the short-run average cost for 10 paddles with the following changes.

a. Your opportunity cost of work time triples, from $50 to $150.
b. The interest rate for invested funds is cut in half, from 10 to 5 percent.
c. Labor productivity the quantity produced by each workforce doubles.
5. Compute the Short-Run Costs. Consider a firm with the following short-run costs:
a. What is the firm fixed cost?
b. Compute short-run marginal cost (MC), short-run average variable cost (AVC), and short-run average total cost (ATC) for the different quantities of output.
c. Draw the three cost curves. Explain the relationship between the MC curve and the ATC curve and the relationship between the AVC curve and the ATC curve.

Output Fixed Variable Total Marginal Average Average Average Cost Cost Cost Cost Fixed Variable Total (FC) (VC) TC) (MC)CostCost (AFC) (AVC) (ATC) OS $10 18 30 45 65 SHORT-RUN COSTS Labor Output Fixed Cost Variable Cost Total Cost Average Fixed Average Variable Average Total Marginal Cost Cost (AFO) Cost (AVC) $100.00 100 10 Quantity Variable | Mg Average Average Cost CsCos Variable Total Cost (VC)(TC (MC) Cost (AVC)(ATC) 0S S 30 S 90 110 150 200 2 50 90 140 S 200 260