Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Question
error_outline
This textbook solution is under construction.
Students have asked these similar questions
Consider a firm with a total cost function TC = q^2 + 20q + 225.
a) In a diagram, measuring quantity along the horizontal axis, draw the firm’s Marginal Cost and Average Cost curves.
Suppose that the government introduces a $10 per unit seller tax.
b) What is the firm’s new total cost function? In the same diagram as above, illustrate how the tax affects the firm’s MC and AC curves. Does the tax affect the firm’s MC? Does it affect the firm’s minimum efficient scale?
Suppose instead that the government introduces a new licensing fee that raises the firm’s recurring fixed cost to 400.
C) In a new diagram draw the firm’s MC and AC before and after the introduction of the licensing fee. Does the fee
affects’ the firm’s MC? Does it affect the firm’s minimum efficient scale?
Q. 4
For a firm with a Total Cost function TC = C(Q), recall that the definitions of Marginal Cost (MC) and Average !3! Total Cost (ATC) are given as follows:
Marginal Cost (MC) = C'(Q)
Average Total Cost (ATC) = C(Q)/Q
Prove that the marginal cost is equal to the average total cost (MC = ATC) when the average total cost is at its minimum value.
(Hint: By using the definition of average cost function, find the quantity that minimizes it by applying unconstraint optimization. Show that the FOC of the minimization problem implies that MC=ATC has to be satisfied at the minimum level of average cost.)
The total cost function of a firm producing Jeans is TC = 0.5Q3− 15Q2 + 175Q + 100, where Q is output.
a.What are the total variable cost (TVC) and the total fixed cost (TFC) in this case?
b.The average cost is given by AC = TC/Q, the average variable cost is AVC = TVC/Q and the average fixed cost is AFC = TFC/Q. Find the AC, AVC and AFC functions.
c. If the marginal cost is MC = 3(0.5)Q2 - 2(15)Q + 175, then roughly sketch the graph of MC, AVC and AC (If you know how to use Excel, then you can get more accurate graphs). What relationship do you observe between the three cost curves?
Knowledge Booster
Similar questions
- A firm in a perfectly competitive industry has patented a newprocess for making widgets. The new process lowers the firm’saverage cost, meaning that this firm alone (although still aprice taker) can earn real economic profits in the long run. a. If the market price is $20 per widget and the firm’s marginalcost is given by MC=0.4q , where q is the dailywidget production for the firm, how many widgets willthe firm produce? b. Suppose a government study has found that the firm’snew process is polluting the air and estimates the socialmarginal cost of widget production by this firm to be. If the market price is still $20, what is thesocially optimal level of production for the firm? Whatshould be the rate of a government-imposed excise tax tobring about this optimal level of production? c. Graph your results.arrow_forwardAutomobile manufacturing is an industry subject to significant economies of scale. Suppose there are four domestic auto manufacturers, but the demand for domestic autos is no more than 2.5 times the quantity produced at the bottom of the long-run average cost curve. What do you expect will happen to the domestic auto industry in the long run?arrow_forwardSuppose the production function for a competitive firm is y=f(x1,x2)= x1 1/4 x2 1/4 . The cost per unit of the first input is w1 and the cost of the second input is w2. A: What are the returns to scale of this production function? B: Find the cheapest input bundle, x1 and x2, that yields the given output level of y. C: Write down the formula of the firm’s total costs as a function of y. D: Are the average costs increasing, constant or decreasing in y? Are the marginal costs increasing, constant or decreasing in y?arrow_forward
- Month (m): 4 Day (d): 1 Use the two numbers above, m and d, to complete the cost function for a perfectly competitive firm: Cost (q) = m q2 + d = (30) For a cost function like yours, Marginal Cost (MC) = 2 m q . Specifically, what are the following for the cost function you wrote out above? Fixed Cost = Average Total Cost = Cost (q)/q = Variable Cost = Average Fixed Cost = FC/q = Marginal Cost = 2 m q = Average Variable Cost = VC/q = (15) Fill in the table with your values from your cost function. q Total Cost AVC AFC ATC MC 0 0 0 -- -- -- 1 2 3 4 5 6arrow_forwardSuppose a company's revenue function is given by R(q)=−q3+400q2R(q)=-q3+400q2 and its cost function is given by C(q)=550+12qC(q)=550+12q, where qq is hundreds of units sold/produced, while R(q)R(q) and C(q)C(q) are in total dollars of revenue and cost, respectively.A) Find a simplified expression for the marginal profit function. (Be sure to use the proper variable in your answer.) MP(q)=MP(q)= B) How many items (in hundreds) need to be sold to maximize profits? Answer: hundred units must be sold. (Round to two decimal places.)arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning