Suppose a firm’s cost function is given by C(q) = 20 + 10q − 4q^2 + q^3 (a) What is fixed cost? (b) What is variable cost? (c) Compute average cost, average fixed cost, and average variable cost, assuming q > 0. (d) Derive marginal cost. (e) Solve for the shut-down level of production, qSD. (Hint: The minimum of a well-behaved curve can be found by setting the first derivative equal to zero.)
1. Suppose a firm’s cost function is given by C(q) = 20 + 10q − 4q^2 + q^3
(a) What is fixed cost?
(b) What is variable cost?
(c) Compute average cost, average fixed cost, and average variable cost, assuming q > 0.
(d) Derive marginal cost.
(e) Solve for the shut-down level of production, qSD. (Hint: The minimum of a well-behaved
curve can be found by setting the first derivative equal to zero.)
Given information:
We have given the cost function.
i.e., C=20 + 10q - 4q2 + q3
The cost function is the sum of fixed costs and variable costs.
Fixed cost remains constant at each level of quantity and it does not depend on quantity.
The variable cost keeps changing as the quantity and it depends on quantity.
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