De La Salle University

School of Economics
MIC1ECO
Term 1, AY 2021 - 2022
Dr. Angelo A. Unite
Assignment 8: Behavior of Short-Run and Long-Run Cost Curves

1. This assignment is a group effort (minimum of 1 student and maximum of 2 students per group), and thus, there
should only be one set of solutions per group. You are not allowed to consult with nor be consulted by other students
currently enrolled in this group. A FINAL GRADE OF 0.0 WILL BE GIVEN TO THE STUDENTS WHOSE
REPORTS ARE PROVEN TO BE COPIES (IN FULL OR IN PART) OF EACH OTHER.
2. For each main problem (indicated by a Roman numeral), answer the sub-questions (indicated by an Arabic numeral)
in their order of appearance. Start answering each main problem (indicated by a roman numeral) in a new sheet. For
each main problem, be sure to indicate the number of the sub- question you are answering. Read the questions
carefully and answer only what is required. Do not make any assumptions other than those given in the problems.
3. Be sure to show the theoretical justification or basis for your answers to each question in this exam. You should start
each answer with a brief discussion of the basis for your answer. The basis is usually an economic concept, a
mathematical definition, or a set of conditions that provides the framework for your answer. Do not just turn in
computations! No explanation and basis, no credit.
4. Simplify all final answers. For final answers that involve numerical values, round off to the nearest 4 decimal places.
5. For questions that require you to determine the sign of derivatives or mathematical functions, be sure to show the
basis for the sign.
6. Your answers should be word processed (MSWord or Pages) on A4-size document with 1-inch margins all around.
You can generate equations using MathType or MS Word’s build-in Equation Editor. See the pdf document “Guides
to Using MathType” for the instructions on how to use MathType in MS Word or Pages. Graphs can be generated
using Mathematica, MSWord, or MSExcel.
7. Avoid using Google Docs as it sometimes destroys formatting and/or equations when exporting to PDF. Microsoft
Word allows real-time collaborative editing (follow this link for a tutorial https://bit.ly/CollabinMSWord).
8. NO SECTION OF YOUR ASSIGNMENT MAY BE HANDWRITTEN OR IN THE FORM OF SCANNED IMAGES.
Submissions with handwritten or scanned answers (in part or in full) will not be given any credit. Answers involving
equations that were not generated using MS Equation Editor or MathType will not be given any credit.
9. Type, sign and date the Pledge of Academic Honesty Pledge below and make it the cover page of your report.

Pledge of Academic Honesty

This is to certify that we did not consult with anyone, including copying the answered assignments of students who
took this course in previous trimesters, in arriving at our answers to this assignment in MIC1ECO. In addition, we
are certifying that we did not allow ourselves to be consulted by other students who are currently enrolled in this
course during their solving the same assignment. We are aware that a final grade of 0.0 will be given to the students
whose reports are confirmed to be copies (full or partial) of each other and students who violated this pledge.

__________________________________________________
Signature over printed name and date – Group Member 1

__________________________________________________
Signature over printed name and date – Group Member 2

10. Save your Word document in PDF file format. The pdf file should be uploaded in Canvas. Be sure that your signature
is on the pledge of academic honesty. No signature/s, no credit.
11. The Canvas facility for uploading of the pdf copy of your word-processed answers closes at 8:00 am of the last day of
submission specified in this syllabus (SCHEDULE OF ASSIGNMENTS). Submissions made outside the Canvas
Assignment facility will not be accepted nor given any credit.
12. Any correction on the mark for this assignment must be brought up with my teaching assistant during the week when
the marked version of this assignment is returned to the students. After this one-week period, any correction on the
mark shall no longer be considered.
13. Any student may be asked to present and discuss his/her group’s solutions in class. The schedule of oral presentation
of answers to the assignments is given in the Learning Plan.
 START ANSWERING PROBLEM I IN A NEW SHEET

I. A firm’s short-run total cost function is given by 𝑺𝑪 = 𝟎. 𝟏𝒒𝟑 − 𝟐𝒒𝟐 + 𝟏𝟓𝒒 + 𝟏𝟎.
1. Find the equations of the firm’s short run (a) average cost curve, (b) average variable cost curve,
(c) marginal cost curve, and (d) average fixed cost curve.
2. For which values of output levels does the short run average cost curve decrease or increase? Use
calculus and words to answer this question.
3. For which output levels does the marginal cost curve decrease or increase? Use calculus and
words to answer this question.
4. For which output levels does the does the average variable cost curve decrease or increase? Use
calculus and words to answer this question.
5. For what output level does the short run marginal cost curve cross the short run average cost
curve?
6. For what output level does the short run marginal cost curve cross the average variable cost
curve?
7. What happens to this firm’s average fixed cost as it produces more output? Use calculus and
words to answer this question.

START ANSWERING PROBLEM II IN A NEW SHEET

II. A firm’s long-run total cost function is 𝑪 = 𝟏𝟑𝒒 − 𝟔𝒒𝟐 + 𝒒𝟑 where q is the firm’s output level.
1. What are the equations of the firm’s long-run average cost curve and long-run marginal cost
curve.
2. Over what range of output does the firm experience economies of scale? Use the long-run average
cost function, calculus and the necessary concept to answer this question.
3. For which values of output does this firm experience diseconomies of scale? Use the long-run
average cost function, calculus and the necessary concept to answer this question.
4. For which output levels is the total cost curve strictly concave or strictly convex in output? Give
an economic interpretation of your results.
5. For which output levels is the marginal cost curve strictly concave or strictly convex in output?
Give an economic interpretation of your results.
6. For which output levels is the average cost curve strictly concave or strictly convex in output?
Give an economic interpretation of your results.
7. What is the firm’s minimum efficient scale? Show and briefly explain how you arrived at your
answer.
8. Show that at the minimum efficient scale, the firm’s long-run average cost curve crosses the long-
run marginal cost curve.