Ed's construction company has the following short-run cost function: q3 - 10q2 + 36q
a. What level of output will minimize the average cost? What is the AC at this point?
b. Does the production process indicate diminishing returns? How can you tell?
a. When dAC/dq=0 or equivalently AC=MC, the AC is at a minimum. To derive:
AC = q2 - 10q + 36
MC = 3q2 - 20q + 36
Setting these equal
2q2 - 10q = 0
Solve to get q=5. Plug back into the AC to get AC = 25 - 50 + 36 = 11
b. The MC curve initially decreases but eventually rises. To see this, look at
dMC/dq = 6q - 20
When q > 10/3, the MC is rising. Since MC = w/MP, this implies the MP is decreasing.
You might also like to view...
Based on the data in the table above, the economy will be in short-run equilibrium at a price level of
A) 90. B) 110. C) 100. D) 120.
Susan Sneed gave up her $55,000 job at ACC, Inc to return to college to change careers. She reduced her wardrobe to cheaper jeans and t-shirts, paid $5,000 in tuition, continued to make her family's $1,200 per month home mortgage payments, and bore the burden of a variety of inane comments about the stupidity of older students giving up good paying jobs to return to school. Which of the above
items is not needed to determine the opportunity cost of her return to college? a. her $55,000 ACC, Inc. salary b. the altered wardrobe costs c. the $5,000 tuition expense d. her family's $1,200 per month mortgage expense e. psychological stress from inane comments