**Problem 3: Analyzing the Cost Structure of Nokia's New Budget Cell Phone**Nokia sells a new budget cell phone. Based on information provided by the accounting department, the average variable cost (AVC) is defined as follows:\[ \text{AVC} = \$30 + Q \]The average fixed cost (AFC) is given by:\[ \text{AFC} = \frac{\$9,000,000}{Q} \]Here, $ Q $ represents the number of phones produced. The selling price of each phone is $50.**Tasks and Concepts to Explore:**a. **Derive the Cost Equations:** - **Total Cost (TC):** Identify the equation considering both variable and fixed costs. - **Average Cost (AC):** Develop an equation for the average cost per unit. - **Marginal Cost (MC):** Formulate the marginal cost function to determine the cost of producing an additional unit.b. **Optimization Query:** - Determine the output level at which the average total cost is minimized.**Instructions for Problem Solving:**- **Derive the Total Cost Equation:** The equation for total cost accounts for both the variable and fixed expenses incurred by producing $ Q $ phones.- **Calculate Average and Marginal Costs:** Utilize the given AVC and AFC to compute AC and MC.- **Analyze Cost Minimization:** Explore the conditions under which the average total cost reaches its minimum value, applying relevant economic theories or calculus if needed.

Given The average variable cost for Nokia cell phone: AVC=$30+Q .........(1) Average…

3. Nokia sells a new budget cell phone. Based on information provided by the accounting department, the average variable cost is: AVC = $30 + Q The average fixed cost is: AFC = $9,000,000/Q where Q is the number of phones. The phone sells for $50. Show your work/thought process: a. Find the total cost, average cost, and marginal cost equations. b. At what level of output is average total cost minimized?

3. Nokia sells a new budget cell phone. Based on information provided by the accounting department, the average variable cost is: AVC = $30 + Q The average fixed cost is: AFC = $9,000,000/Q where Q is the number of phones. The phone sells for $50. Show your work/thought process: a. Find the total cost, average cost, and marginal cost equations. b. At what level of output is average total cost minimized?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Short-Run Costs and Long-Run Costs

Cost of short-run and the long-run is an economic term that describes the cost involved in the production of goods in a firm in the short as well as long period.

Question

**Problem 3: Analyzing the Cost Structure of Nokia's New Budget Cell Phone**

Nokia sells a new budget cell phone. Based on information provided by the accounting department, the average variable cost (AVC) is defined as follows:

\[ \text{AVC} = \$30 + Q \]

The average fixed cost (AFC) is given by:

\[ \text{AFC} = \frac{\$9,000,000}{Q} \]

Here, $ Q $ represents the number of phones produced. The selling price of each phone is $50.

**Tasks and Concepts to Explore:**

a. **Derive the Cost Equations:**
- **Total Cost (TC):** Identify the equation considering both variable and fixed costs.
- **Average Cost (AC):** Develop an equation for the average cost per unit.
- **Marginal Cost (MC):** Formulate the marginal cost function to determine the cost of producing an additional unit.

b. **Optimization Query:**
- Determine the output level at which the average total cost is minimized.

**Instructions for Problem Solving:**

- **Derive the Total Cost Equation:** The equation for total cost accounts for both the variable and fixed expenses incurred by producing $ Q $ phones.
- **Calculate Average and Marginal Costs:** Utilize the given AVC and AFC to compute AC and MC.
- **Analyze Cost Minimization:** Explore the conditions under which the average total cost reaches its minimum value, applying relevant economic theories or calculus if needed.

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Nokia sells a new budget cell phone. Based on information provided by the accounting department, the average variable cost is: AVC = $30 + Q %3D The average fixed cost is: AFC = $9,000,000/Q where Q is the number of phones. The phone sells for $50. Show your work/thought process: a. Find the total cost, average cost, and marginal cost equations. b. At what level of output is average total cost minimized?
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