Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Highlighted question. Thank you.
Transcribed Image Text:= 5Q=187.5
=> Q = 187.5/5 = 37.5
And at this quantity,
Price 187.5 (2.5 × 37.5)
= 93.75
The quantity at which the TR is maximum = 37.5 The price at which the TR is maximum
is 93.75
Problem 2:
Your company's cost function (monthly) can be defined as; TC = cost per unit (AC) × quantity
supplied (Q). If the cost per unit (average cost) for your firm is AC = (800/Q) - 10 +2Q:
a. What is the total cost function for your firm in terms of Q?
AC(Q)=800/Q-10+2Q
When average cost function is given, total cost can be calculated as average cost multiplied by
quantity.
TC(Q)=AC(Q)XQ
TC(Q)=(800/Q−10+2Q)×Q
TC(Q)=2Q2-10Q+800
Total cost function in terms of Q. Total cost function in terms of Q.
b. How would you interpret the intercept term in this function?
TC(Q)=2Q2-10Q+800
The intercept which is 800 is the Total fixed cost the firm faces and the rest of the costs are the
firms total variable costs
Then the firms total fixed cost are and firms total variable cost are
TVC(Q)=2Q2-10Q
Total cost can be written as the sum of total fixed cost and total variable cost
TC(Q)=TFC+TVC(Q)
The intercept term can be interpreted as Total fixed cost of the firm.
C. What is the marginal cost function for your firm?
Transcribed Image Text:TC(Q)=2Q2-10Q+800
Marginal cost of the firm can be derived by differentiation of the total cost function with
respect to Q
MC(Q)=d
TC(Q)/dQ=d(2Q2-10Q+800)/dQ=4Q-10
Thus marginal cost function for the firm is given as
MC(Q)=4Q-10
d. At what level of output (Q) is AC minimized?
e. Is MC always less than AC?
Given AC =
and TC
So,
OT,
or,
or,
OT,
MC
or,
800
Q
AC x Q
= {(800) - 10+2Q} Q
800 - 10Q +2Q²
8TC
8Q
Now, the minimum of AC occurs at that level of Q where AC
ƏQ
Accordingly,
{(800) 10 + 2Q
- 2Q }
800
+2
-
=
8TC
ƏQ
= -10 + 4Q
-
800
800
800
Q²
(800 – 10Q + 2Q² )
8AC
8Q
+2=0
2 0
2Q²
Q²
= 2
10+2Q
800
= 400
= 20
JAC
8Q
0
MC is NOT ALWAYS lesser than the AC. When AC is falling then MC happens to be greater
than AC, while, on the other hand, when AC is rising, MC is less than that of AC. At the
minimum point of AC, both MC and AC are equal. In this case, MC will be lesser than AC
only for output less than 20. Thereafter, the MC will be greater than AC. Thus, MC is less
than AC only till the minimum of AC is reached. Beyond that MC is more than AC.
3
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education