Question

(Topic: Economics)

Answer 1

The total cost when producing zero units is $20.

The marginal cost for the first unit is $50.

The average total cost when producing three units is $65.67.

The average variable cost when producing four units is $98.

What are cost functions?

Fixed cost is cost that does not change with the quantity of output produced. An example of fixed cost is rent. Average fixed cost is fixed cost divided by total output.

Variable cost is the cost that changes with output. It increases the more output is produced. Average variable cost is variable cost divided by total output.

Total cost is the sum of fixed cost and variable cost. Average total cost is total cost divided by total output. Marginal cost is the change in total cost.

Total cost of producing zero units = fixed cost + variable cost

$20 + 0 = $20

Marginal cost of the first unit = (total cost of the first unit - total cost of the zero unit) / (2 - 1)

Total cost of the first unit = (average variable cost x total output) + fixed cost$20 + 50 = $70

Marginal cost = (70 - 20) / (2 - 1) = $50

The average total cost when producing three units = Total cost / total units

Total cost of three units = marginal cost of three units + total cost of two units

Total cost of two units = 105 + 92 = $197

The average total cost = $197 / 3 = $65.67

The average variable cost when producing four units = (412 - 20) / 4 = $98

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