The short-run cost function of a company is given by the equation TC=10000+50q,

Question

The short-run cost function of a company is given by the equation TC=10000+50q, where TC is the total cost and q is the total quantity of output.

a. what is the company's fixed cost?

b. If the company produced 2,000 units of goods what would be its average variable cost?

c. What would be its marginal cost of production?

d. What would be its average fixed cost?

e. Suppose the company borrows money and expands its factory. Its fixed cost rises by $5,000 but its variable cost falls to $45/unit. The cost of interest also enters the equation. Each 1 point increase in the interest rate raises costs by $250. Write the new cost equation.

Explanation / Answer

a. As we know,

Total Cost = Fixed Cost + Variable Cost

So here fixed cost is $10,000.

b. Variable cost is 50q for q units. So variable cost is ($50 * 2,000) = $100,000.

So average variable cost = ($100,000 / 2,000) = $50.

c. Marginal Cost = 50.

d. If q = 2,000 then average fixed cost = $10,000 / 2,000 = $5.

e. Fixed cost changes from $10,000 to $15,000, measured in thousands. Variable cost decreases from $50 to $45. Fixed cost also includes interest charges 250i. The cost equation is
C = 15000 + 45q + 250i.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

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