Economists at Jensen Enterprises used time-series data to estimate the following total cost function for the firm: TC=200-2Q+0.05 Where TC is total cost and Q is the output rate. a. Determine an equation for the average cost function. Plot this function, and find the output rate that minimizes average cost. b. Is the production process characterized by decreasing, constant, or increasing returns to scale? c. If the market price of output is $4.32 per unit, is there a scale of plant that would allow the firm to earn an economic profit or at least to break even?
Economists at Jensen Enterprises used time-series data to estimate the following total cost function for the firm: TC=200-2Q+0.05 Where TC is total cost and Q is the output rate. a. Determine an equation for the average cost function. Plot this function, and find the output rate that minimizes average cost. b. Is the production process characterized by decreasing, constant, or increasing returns to scale? c. If the market price of output is $4.32 per unit, is there a scale of plant that would allow the firm to earn an economic profit or at least to break even?
Chapter11: The Firm: Production And Costs
Section: Chapter Questions
Problem 21P
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7-16. Economists at Jensen Enterprises used time-series data to estimate the following total cost function for the firm:
TC=200-2Q+0.05
Where TC is total cost and Q is the output rate.
a. Determine an equation for the average cost function. Plot this function, and find the output rate that minimizes average cost.
b. Is the production process characterized by decreasing, constant, or increasing returns to scale?
c. If the market price of output is $4.32 per unit, is there a scale of plant that would allow the firm to earn an economic profit or at least to break even?
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