economic profits. How can you explain this?

31. A common name for fixed cost is “overhead.” If you divide fixed cost by the quantity of output produced,

you get average fixed cost. Suppose fixed cost is $1,000. What does the average fixed cost curve look like?

Use your response to explain what “spreading the overhead” means.
186 7 • Problems

32. How does fixed cost affect marginal cost? Why is this relationship important?

33. Average cost curves (except for average fixed cost) tend to be U-shaped, decreasing and then increasing.

Marginal cost curves have the same shape, though this may be harder to see since most of the marginal

cost curve is increasing. Why do you think that average and marginal cost curves have the same general

shape?

34. What is the relationship between marginal product and marginal cost? (Hint: Look at the curves.) Why do

you suppose that is? Is this relationship the same in the long run as in the short run?
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