Analyze the major short run cost functions for this firm assuming they are repre

Question

Analyze the major short run cost functions for this firm assuming they are represented by the equations below. Suggest substantive ways in which you may use this information to make production decisions in the short-run and possibly the long run. TC = 160,000,000 + 100Q + 0.00632Q2 VC = 100Q + 0.00632Q2 MC= 100 + 0.0126Q Hints: What is the equation for average total costs? How is this useful? What is the output level and dollar value associated with minimum average total cost and minimum average variable costs?

Explanation / Answer

TC = 160,000,000 + 100Q + 0.00632Q 2

Equation for average total costs = 160,000,000 / Q+ 100+ 0.00632 Q

Equation for average total costs = 100+ 160,000,000 Q-1 + 0.00632 Q

dc/dq = -1 X 160,000,000 Q-2 +   0.00632

160,000,000 / Q2 = 0.00632

Q = 159,111 units ( outout level)

TC = 160,000,000 + 100Q + 0.00632Q 2

TC = $ 335 ,910 , 181.20 ( dollar value)

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VC = 100Q + 0.00632Q 2

Average variable costs = 100 + 0.00632 Q

dvc/dq = 0.00632

The output level associated with minimum average variable costs = 0

dollar value = $ 100 .

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