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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.

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.14P
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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.
Transcribed Image Text: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.
Transcribed Image Text: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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