Explain why the U-shapes of the short-run average total cost

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a) Draw a graph to show the average total cost, average variable cost, average fixed cost and marginal cost curves for a competitive firm.

b) Assume the cost curves illustrated in part a) represent the cost curves for a road transport company. Illustrate and explain how each of the following affects the company’s average total cost, average variable cost, average fixed cost and marginal cost.

a) An increase in the price of diesel (diesel is a significant cost for the company).

b) A decrease in the annual rent the company pays on its transport storage facility.

c) With the aid of relevant diagrams, explain why the U-shapes of the short-run average total cost and long-run average cost curves are the result of quite different forces.

Reference no: EM131074951

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