Nokia sells a new budget cell phone. Based on information provided by the accounting department, the average variable cost is: AVC = $30 + Q The average fixed cost is: AFC = $9,000,000/Q where Q is the number of phones. The phone sells for $50. Show your work/thought process: a. Find the total cost, average cost, and marginal cost equations. b. At what level of output is average total cost minimized?

Average cost curves (except for avenge 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?

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

What shape of a long-run average cost curve illustrates economies of scale, constant returns to scale, and diseconomies of scale?