Your firm operates three plants. The cost functions vary across the three plants

Question

Your firm operates three plants.  The cost functions vary across the three plants.

Plant A:

Marginal Cost = 6Q   

Average Variable Cost = 3Q

Average Fixed Cost =1000/Q

Plant B:

Marginal Cost =10Q

Average Variable Cost = 5Q

Average Fixed Cost =600/Q

Plant C:   

Marginal Cost =12Q

Average Variable Cost = 6Q

Average Fixed Cost = 4000/Q

You can sell your output at a constant price of $600.  

a)   How much output should be produced at each plant? Explain.

b) What is the average total cost of production at each plant?

c) Evaluate the following statement:

Your firm operates three plants. The cost functions vary across the three plants. You can sell your output at a constant price of $600. How much output should be produced at each plant? Explain. What is the average total cost of production at each plant? Evaluate the following statement:

Explanation / Answer

1)

Plant A

6Q = 600

Q = 100

Plant B

10Q = 600

Q = 60

plant C

12Q = 600

Q = 50

2)

average total cost is

Plant A -> 1000/Q + 3Q

Plant B -> 600/Q + 5Q

plant C -> 4000/Q + 12Q

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