Question

Cost Functions of a Firm $2,500 $2,280 - $2,250 - $1,980 $2,000 $1,608 $1,680 $1,750 $1,380 $1,200 $1,500 $1,342 $1,251 $1,200 $1,250 $1,248 $1,000 L $1,200 $840 - $660 $750 $480 - $120 $500 $607 $120 $240 $250 $240 0 1 2 3 4 8 9 10 11 12 5 6 7 Output Produced (q)

Answer 1

Solution-

Here red curve represents marginal cost, green curve represents average total cost and blue curve represents average variable cost. Marginal cost curve cuts both average total cost curve and average variable cost curve at its minimum point.

We will first make a schedule of marginal cost and from that we will find out Total Variable Cost. Also we have average total cost, from that we will find Total cost. At any level of output, Total fixed will remain same and will be the difference of total cost and total variable cost.

(3) The total cost of producing 3 units of output can be found out by the following schedule given below

(Addme consecutively ($) Long $) ($) TC AFC LATCH I Units ATC TVC TEC TVC MC TC 660 660 goo 240 120 1020 6840 - 60 1080 1980 7920 120 12.00 1608 8040 240 1440 1380 8280 480 1920 1251 8757 840 2760 1200 9600 1200/39601 1200 | 10800 1680 156401 1248 1 12480 228017920 1342 1 147621 TC of producing 3 units = TC = TFC + Tvc=68404 1020 = 786 0 1 1 1

So total cost in producing 3 units is $7860.

(4) From the schedule above we have TVC at 10 units equal $5640. We know that AVC= TVC/Q, So AVC=5640/10=$564.

(5) In perfectly competitive market, price is equal to marginal cost. We have price as $1680, so marginal cost of $1680 corresponds to 10 units of quantity.

Firm's revenue will be P×Q= 1680×10=$16800

Profit= Total Revenue- Total Cost, Total cost at 10 units of quantity is $12480. So Economic profit= 16800-12480=$4320

Producer surplus=1/2× given quantity × given price

P.S=1/2× 10×1680= 8400

Since price is 1680, it will be able to cover = 6840-1680=$5160 of the fixed cost.