Suppose fixed costs are equal to 10,000. Then the equation of the cost function is 10,000 + 2 Q

Suppose marginal cost increased from 2 to 3. On a diagram this would be represented as a parallel upward shift in the cost function.

The

average cost curve is

The

total cost curve is an upward-sloping straight line through the origin.

If fixed costs are equal to 100,000, the equation of average costs is given by AC(Q) = 100,000 / Q

The marginal

cost curve intersects the average cost curve at its minimum point.

Suppose the market price of cheerios falls to $2. The firm will make losses, but it can reduce those losses by increasing output and thus spreading the fixed costs over more units of output.

The

marginal cost curve is a horizontal straight line.

The discrete marginal cost of going from Q = 19 to Q = 20 will be an overestimate. 

The discrete marginal cost of going from Q = 19 to Q = 20 will be an underestimate. 

The discrete marginal cost of going from Q = 20 to Q = 21 will be an overestimate.  

The discrete marginal cost of going from Q = 20 to Q = 21 will be an underestimate.  

To the right of point E, marginal revenue is greater than marginal cost.

At point E, marginal revenue is positive but less than price.

To the left of point E both marginal revenue and marginal cost are positive.

If the firm was forced to set price equal to marginal cost it would still make profits.

At point G both Angela and Bruno are earning economic rent.

At any point in the lens-shaped area between the feasible frontier and Angela's indifference curve at least one person is better off than if Angela is at her reservation point  Z. So compared to Point Z any point in this area represents a Pareto Improvement on point Z.

Angela does all the work so, whatever the allocation, she never earns any economic rent.

Any point between C and D is pareto-efficient. A point halfway between C and D would be the fairest split, so this would be the best possible outcome.

Angela does all the work so the fairest outcome is when she gets all the output.

Whatever Angela gets, what Bruno gets (his rent as a landlord) is also economic rent.

At any point not on the line between points C and D, either Angela or Bruno, or both, can be made better off.

At any point between C and D total surplus (economic rent earned by Angela and Bruno collectively) is maximised.