Show that for a profit-maximizing firm producing at its optimal quantity, y∗, its average total costis minimized when marginal cost is equal to average total cost. Some tips to get you started: •Say the firm’s profit function is π=py∗−c(y∗). What is average total cost? •Find the first order condition that will show when average total cost is minimized. Use thefirst order condition to arrive at the desired conclusion.

Show that for a profit-maximizing firm producing at its optimal quantity, y∗, its average total costis minimized when marginal cost is equal to average total cost. Some tips to get you started: •Say the firm’s profit function is π=py∗−c(y∗). What is average total cost? •Find the first order condition that will show when average total cost is minimized. Use thefirst order condition to arrive at the desired conclusion.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

solve this one
What is the difference between economic profit and accounting profit? What is a normal rate of return and how does normal, less than normal, greater than normal inform resource allocation?
The production function for a product is given by q= 10K^(1/2)L^(1/2) where K is capital, and L is labor and q is output d) Now suppose w =30 and r = 120. What is the minimum cost of producing q=1000. (You must show your work by clearly writing the equations that you use to derive the cost minimizing levels of L and K.) e) Now suppose that the firm is in the short run and cannot vary the amount of capital. That is, it must use the same amount of capital as in part d). However, the firm wants to produce 1200 units of output. How much labor should it use to minimize its cost and what is the minimum cost of producing q =1200?
Can you please solve question # 14
I'm not sure about part b-e for this question. How do I know if there are economies of scale in production based on a table like this?
Which of the following statements about average and marginal cost is INCORRECT? (2)(1) The marginal cost curve cuts both the average cost and average variable costcurves at their minimum points;(2) The marginal cost curve cuts both the average fixed cost and average variablecost curves at their minimum points;(3) The marginal cost curve lies below the average cost curve when average costis decreasing;(4) Marginal cost is the change in total cost when one extra unit of output isproduced.
Firm "Happy Capitalist" has following production function: f(K, L) = 2*k0.2L0.8. Furthermore, it is known that cost of capital (r) is equal to 2 and cost of labour (w) is 4. Having said that, capitalist wishes to maintain an output of 250 at lowest possible cost. We ask: a) Solve cost minimisation. Also, is it a corner solution or an interior solution; b) Graph previous result: isoquant and isocost of production; c) Determine average productivity of each factor; d) Is it a function with returns to scale of what type, increasing, decreasing or constant? e) Calculate elasticity of input-output