AP Micro Unit $3$ FRQ SY$2324$

Assume that a firm uses capital as a fixed factor of production and uses labor as a variable factor. The marginal product of

labor at first increases and then decreases with the amount of labor.

a$.$ Using a correctly labeled graph, draw and identify the firm's average total cost curve $($ATC$),$ average variable

cost curve $($AVC$),$ and marginal cost curve $($MC$).$

b$.$ Given your graph in part $($a$),$ answer each of the following.

i$.$ Why is the MC shaped as it is$?$

ii$.$ What does the difference between the AVC and the ATC represent?

c$.$ Define economies of scale.

d$.$ Draw a long$-$run average total cost curve that has a region of economies of scale followed by a region of

diseconomies of scale, as output increases.

Respond to all parts of the question.