Labor Inputs Outputs Avc AFC

Labor Inputs

Outputs

AVC

AFC

ATC

MC

AVC = total variable costs / output

AVC1= 1000 / 12 = 83.33

AVC2 = 2000 / 32 = 62.5

AVC3 = 3000 / 58 = 51.72

AVC4 = 4000 / 88 = 45.45

AVC5 = 5000 / 110 = 45.45

AVC6 = 6000 / 120 = 50

AVC7 = 7000 / 124 = 56.45

AFC = fixed costs / output

AFC1 = 3000 / 12 = 250

AFC2 = 3000 / 32 = 93.75

AFC3 = 3000 / 58 = 51.72

AFC4 = 3000 / 88 = 34.09

AFC5 = 3000 / 110 = 27.27

AFC6 = 3000 / 120 = 25

AFC7 = 3000 / 124 = 24.19

ATC = AVC + AFC

ATC1 = 83.33 + 250 = 333.33

ATC2 = 62.5 + 93.75 = 156.25

ATC3 = 51.72 + 51.72 = 103.44

ATC4 = 45.45 + 34.09 = 79.54

ATC5 = 45.45 + 27.27 = 72.72

ATC6 = 50 + 25 = 75

ATC7 = 56.45 + 24.19 = 80.64

MC = cost of producing y units -- cost of producing (y-1) units

MC1 = 156.25 -- 333.33 = -177.08

MC2 = 103.44-156.25 = -52.81

MC3 = 79.54-103.44 = -23.9

MC4 = 72.72-79.54 = -6.82

MC5 = 75-72.72 = 2.28

MC6 = 80.64 -- 75 = 5.64

MC7 =

b)

c) the AVC and ATC Curves

The curve of the average variable costs reveals that as the output increases, the variable costs reveal a tendency of decreases. However, they increase once again with the increase of the output. In other words, immediately after the commencement of production, the variable costs decrease; as the production levels increase however, so do the variable costs.

The curve of average total costs has a similar trend as that of the average variable costs. In other words, after the beginning of production, the increase in output results in a decrease of the total costs. The difference here is more obvious than in the case of the AVC curve, but the outcome is similar in the meaning that the increase in output materializes in a consequent increase in the average total costs.

A relevant specification to be made here is that the average total costs curve is generally placed above the average variable cost curve, for the simple reason that the first is the sum of the second and the average fixed costs.

d) the MC and ATC Curves

The marginal costs reveal the additional expenditures that have to be invested in order to produce an extra output. In the beginning, the difference is actually materializing in a significant economy, as the actual marginal cost has a negative value. The situation is similar in the case of the ATC curve, which also reveals an increased advantage of producing more output. In all, immediately after commencement, both MC and ATC curves reveal that it is more efficient to produce larger amounts of output, rather than smaller. In time however, as the production increases significantly, it becomes obvious that the marginal costs becomes positive, revealing actual additional expenditure of producing one more item. Similarly, the average total costs curve also increases, implying additional costs.

A main theoretical specification that must be made here refers to the long-term relationship between the MC and the average cost curves. This basically states the following:

- if the average cost in decreasing in the quantity produced, or the output, the marginal cost is lower than the average costs

- if the average cost increasing in terms of produced quantities, the marginal cost is larger than the average costs

- if the average cost remains constant, the marginal cost equals the average cost; the situation is similar when the average cost is minimal

- in the case of scale economies, the average cost decreases as the produced quantity increases

- in the case of diseconomies of scale, the situation is reversed as the average cost increases with the increase of the output (Zhao, 2008)

2. Factors in Favour of Monopoly

The practice of monopolistic operations emerges from a multitude of reasons and it often materializes in an organization, or a cartel of organizations, detaining the ultimate power upon a given market. Once it has occurred, the monopolistic organizations may find it easy to consolidate its position due to several factors which favour it. These forces could refer to the creation of economies of scale, the offering of low prices or the legislative regulations. To best understand how these work, take the example of a contemporaneous firm, often engaged in monopolistic discussions.

Microsoft is possibly the ultimate epitome of corporate success, with its founder Bill Gates leading the list of the wealthiest men alive. But what exactly are the factors which still ensure its position? First of all, there is the company's international strength, though which it has created scale economies. This basically means that the software organization has increased access to numerous resources. And this access if often better facilitated than the competitions'. These resources could refer to labor force, technologies, strategic partnerships or marketing resources. This then results in an increased capacity to deliver the highest quality products and services, managing as such to attract the largest numbers of customers. The created economy of scale, alongside with its access to resources, ensures a lower price than that forwarded by the competition. Another factor that supports the monopolistic firm is its brand. Microsoft has created a universal image, which continues to attract large numbers of customers and employees. Finally, in terms of legislative regulations, some state governments have encouraged the creation of monopolies as these are usually easier to regulate. They can be controlled through antitrust policies or through the government's purchasing of corporate stocks and turning as such the organization into a publicly owned one. The latter in not the case of Microsoft, but it has been subjected to antitrust policies and numerous judicial trials. Governments may also encourage monopolistic organizations and they are able to offer lower price goods to the population, reducing as such their overall expenditures and increasing their living standards.