a) Explain what is meant by the terms marginal cost and sunk cost in production theory, and give some examples that can illustrate the concepts.Explain whether these terms are important for a profit-maximizing company that sells a finished item in a market with a fixed market price.

a) Explain what is meant by the terms marginal cost and sunk cost in production theory, and give some examples that can illustrate the concepts.Explain whether these terms are important for a profit-maximizing company that sells a finished item in a market with a fixed market price.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

c) The product function of a business is provided by
of units of the input factor. The company purchases the input factor at a fixed price
per unit given at q = 5 .Furthermore, assume that the enterprise has fixed costs that
are sunk costs in their entirety and that are given at F =100.Show that your
company's cost feature is C(y)20y^2+100.
where v is the number
d) Use the information provided in task (c) and assume that the company can sell the
finished goods in the market at a fixed price given at p = 800 .Formulate your
company's profit function and calculate which production volume maximizes your
company's profits.

a) Explain what is meant by the terms marginal cost and sunk cost in production theory,
and give some examples that can illustrate the concepts.Explain whether these terms
are important for a profit-maximizing company that sells a finished item in a market
with a fixed market price.
b) Production in a business can be described by the product function y = f(v), where y is
the number of units produced of the item, and v is the number of units of the input
factor. The company can purchase the input factor at a fixed price per unit and has no
fixed costs.Suppose that production is characterized by declining scale yield. Explain
what it means and what in such a case can be said about the marginal costs
enterprise.Use charts to illustrate the scale yield and marginal costs in this case.Pay
the
close attention to the axis denominations.

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