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Homework answers / question archive / Use Figure 9
Use Figure 9.16 to answer questions:
a) IF the firm produces 5,000 units of output with a plant using 10 units of capital, the average cost is $______ and total cost is $______
b) IF the firm produces 5,000 units of output with a plant using 30 units of capital, the average cost is $______ and total cost is $______
c) In the long run planning horizon which plant should the manager use to produce 5,000 units of output and why?
a) Average Cost = $0.72
Total Cost = $0.72*5,000 = $3,600
b) Average Cost = $0.30
Total Cost = $0.30*5,000 = $1,500
c) When planning is done for long term it can be seen from the graph that average total cost ($0.30) is minimum when plant with 30 units of capital should be used.