Managerial Economics 7th Edition by Paul Keat ,Philip Young,Steve Erfle

Exercise 2

Use the same data presented in Problem 1 to answer the following questions:
a. Explain the impact on the optimal price of designating the "miscellaneous" cost item as fixed versus variable. ( Hint: Do the pricing analysis assuming miscellaneous is a fixed cost and compare it with an analysis that assumes it is a variable cost.)
b. Under what circumstances do you think the average variable cost would increase (as is generally expected in the economic analysis of cost) Do you think the law of diminishing returns would play a role in increasing AVC Explain.
c. Under what circumstances do you think the average variable cost would decrease Explain.