Suppose a short-run total cost function is given by C = 100 + 50Q 0.2 + Q 2 : (a

Question

Suppose a short-run total cost function is given by C = 100 + 50Q0.2 + Q2 :

(a) Find out the fixed cost, variable cost, marginal cost, average variable cost and average total cost.

(b) Plot them in a diagram and interpret the relationship between average and marginal cost.

5. Prove that, in the short-run, APL and AV C are inversely related. Similarly, MPL and MC are inversely related.

6. Suppose the production function is given by Q = 2L1/2 K1/3; price of labor (w) = 2 and price of capital (r) = 3: The market price for the output produced is P = 6: Answer parts a (i) a (iv) and b (i) to b(v) based on this information.

(a) Short-run production:

i. Suppose capital is fixed at K = 27: Write down this firms SHORT-RUN cost minimization problem. [Note: Capital is fixed here, so the firm chooses only labor to minimize cost.]

ii. Solve the short-run cost minimization problem to get the short-run cost function C (Q) jK=27 : Find out the short-run cost of the firm for producing 60 units of output

Explanation / Answer

Marginal analysis involves a cost-versus-benefits comparison of various business activities. In marginal analysis, the cost of an activity is measured against incremental changes in volume to determine how the overall change in cost will affect the bottom line of a business. Marginal analysis can show the cost of additional production by a business all the way up to the break-even point. This is generally the maximum cost that a business can sustain without losing money.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.