Microeconomics
2nd Edition
ISBN: 9780073375854
Author: B. Douglas Bernheim, Michael Whinston
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 3, Problem 4DQ
To determine
The cost incurred when the project is abandoned.
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For the cost function C(Q) = 500+12Q+4Q2+Q3, what is the marginal cost of producing the eighth unit of output?
An accountant for a car rental company was recently asked to report the firm's costs of producing various levels of output. The accountant knows that the most recent estimate available of the firm's cost function is C(Q) = 100 + 10Q + Q^2, where costs are measured in thousands of dollars and output is measured in thousands of hours rented.
a. What is the average fixed cost of producing 2 units of output?
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- Label each of the following as sunk cost, opportunity cost, or incremental costs and briefly explain why: (Chapter 2) You are deciding which car to buy. Car A is $24,000 and car B is $32,000. The difference in price is $8,000. What kind of cost does this represent? Answer: Your company invested $300,000 into a study to determine the feasibility of introducing a new product line into the business. The study recommended 2 mutually exclusive feasible alternatives. What kind of cost does the $300K represent? Answer: You have 2 alternatives for a $10,000 investment. Investment A provides a $500 return and investment B provides a $700 return. If you choose Alternative B, what does the $500 return from Alternative A represent? Answer:arrow_forwardOuroboros’ total cost (TC) as a function of its production level q is given by the equationbelow:TC(q) = 2?² − 12,000q + 30,000,000a. How much is the fixed cost of production for Ouroboros? b. If q=5,000, how much is the total cost for Ouroboros? c. Evaluate the marginal cost for Ouroboros when q=3,000. d. For this part, suppose that Ouroboros has two corporate customers. The firstcorporations’ demand as a function of Ouroboros’ price is given by ??(?) = 10,000 − ? and the second corporation’s demand function is given by ??(?) = 20,000 − ?.Calculate Ouroboros’ maximum possible profit level.arrow_forwardFor the cost function C(Q) = 75 + 4Q + 2Q2, the marginal cost of producing 5 units of output is:arrow_forward
- This question illustrates the argument on p.114 of the book. A and B own neighboring properties. Beneath their properties is a common well that contains 200 units of oil. The cost to A of extracting oil from the well in period t depends on the number of units of oil in the well at the beginning of the period t, ut, and the number of units of oil A extracts in period t, xAt ; specifically, the average cost of extraction for A per unit in period t is xAt /ut. The analogous cost function for B is xBt/ut. The market price of a barrel of oil is 1, there are two periods (t = 1, 2), and the discount rate is zero. The oil is a common property resource. a) (2) Suppose that A and B "unitize" and cooperatively decide how much oil to extract, and split the profit between them. The jointly profit-maximizing policy is that each extracts 50 units of oil from her well in each of the first two periods, after which the well is dry. How much discounted profit will A and B each make? b) (2) Suppose…arrow_forwardIs this a good example of a sunk cost? Why or why not? “As an entrepreneur, advertising your product correctly is the most crucial thing. As I started my small business at the beginning of the year 2019, I had put around $400 in ads through Instagram and Facebook but wasn’t getting results. I had a low engagement, few clicks, and no sales during the start of my business. “arrow_forwardFor the cost function C(Q) = 200+3Q2+4Q3, what is the average fixed cost of producing 10 units of output? 18.31 42.12 212.61 20arrow_forward
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