Question

Question 01. Consider the cost function C = 5,000 + 50. Q, where C denotes the total cost, and Q denotes the quantity produced. A. Complete the following table: (Hint: MC = AC/AQ) Quantity | Cost Fixed Cost Total Cost Average | Marginal Total Cost Cost 10 20 50 100 1000 B. Using the above table, plot average total cost and marginal cost. Cost Quantity C. Explain how you know that this firm has increasing returns to scale.

Answer 1

A)

Q	VC($) = 50*Q	FC($)	TC($)=FC+VC	ATC($)=TC/Q	MC($)=∆TC/∆Q
0	0	5000	5000	-	-
10	500	5000	5500	550	50
20	1000	5000	6000	300	50
50	2500	5000	7500	150	50
100	5000	5000	10000	100	50
1000	50000	5000	55000	55	50

B)

Costs($) ATC MC 0 100 200 300 400 700 800 900 1000 1100 500 600 Quantity

C) From the table it is seen that as output increases ATC declines. So, it shows increasing returns to scale.