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.