a)
To evaluate the long run
a)
Explanation of Solution
Following is the average variable cost (AVC):
Total Variable cost (TVC)
Introduction: The long-run average cost (LRAC) curve shows the lowest cost per unit for the business at each output point, assuming all production factors are variable. The LRAC curve assumes the firm has selected the optimal mix of factors.
b)
To evaluate the long run marginal cost function for electricity generation.
b)
Explanation of Solution
Differentiating the total variable cost with respect to Q:
Introduction: Long-run marginal cost is an enterprise metric that represents the long-run average cost per unit of output, where all inputs are considered variable and the scale of production is variable. The long-run average cost curve displays the lowest overall cost for long-run generating a given production point.
c)
To evaluate the short run average variable cost and marginal cost functions for electricity generation while holding plant size constant at 150,000 kilowatts
c)
Explanation of Solution
Size of plant constant at 150,000 kilowatt and marginal cost:
Introduction: Average variable cost is the overall variable cost per unit of output incurred when a business participates in the manufacture of short runs. It can be observed in two ways. Because average variable cost is total variable cost per output unit, this can be detected by dividing total variable cost by output quantity.
d)
To evaluate the output level that minimizes short run average variable costs for a plant size equal to 150,000 kilowatts
d)
Explanation of Solution
On differentiating the short run average variable cost and equating it with zero:
Introduction: Average variable cost is the overall variable cost per unit of output incurred when a business participates in the manufacture of short runs. It can be observed in two ways. Because average variable cost is total variable cost per output unit, this can be detected by dividing total variable cost by output quantity.
d)
To evaluate the output level that minimizes short run average variable costs for a plant size equal to 150,000 kilowatts
d)
Explanation of Solution
Output that minimize the short run average variable cost:
Following is the average variable cost:
On differentiating the short run average variable cost and equating it with zero:
Introduction: Average variable cost is the overall variable cost per unit of output incurred when a business participates in the manufacture of short runs. It can be observed in two ways. Because average variable cost is total variable cost per output unit, this can be detected by dividing total variable cost by output quantity.
e)
To evaluate the short run average variable cost and marginal cost at the output level obtained in part (d).
e)
Explanation of Solution
Short run average cost:
Introduction: Average variable cost is the overall variable cost per unit of output incurred when a business participates in the manufacture of short runs. It can be observed in two ways. Because average variable cost is total variable cost per output unit, this can be detected by dividing total variable cost by output quantity.
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