Mr. Krabs works diligently at the Krusty Krab in Bikini Bottom making Krabby Pat

Question

Mr. Krabs works diligently at the Krusty Krab in Bikini Bottom making Krabby Patties with his secret sauce. Assume the cost function is: TC = 100 + 2.5y + 0.05y2.

Based on this information, answer the following:

a. What is the fixed cost at the Krusty Krab?

b. What is the average total cost at the Krusty Krab?

c. What is the average variable cost at the Krusty Krab?

d. What is the marginal cost at the Krusty Krab?

e. Given the above, what is the short- and long-run shut down quantities and prices at the Krusty Krab?

Explanation / Answer

a. Fixed cost is the cost which does not changes with the change in the output. So, Fixed cost is 100 as it does not depend on y. In other words, fixed cost is the cost which also incurred at output of 0 i.e.

TC = 100 + 2.5(0) + 0.05(0)2 = 100

b. ATC = TC/Quantity = (100 + 2.5y + 0.05y2)/y = 100/y + 2.5 + 0.05y

c. Variable cost = 2.5y + 0.05y2

Average variable cost = variable cost / quantity = (2.5y + 0.05y2)/y = 2.5 + 0.05y

d. Marginal cost = first derivative of TC = 2.5 + 0.10y

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

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