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Assume the short run variable cost function is: VC =0
Assume the short run variable cost function is:
VC =0.6q^0.8
If the fixed cost is $1,600 and the firm produces 500 units, determine the cost of production (C), the variable cost of production (VC), the marginal cost of production (MC), the average fixed cost of production (AFC), and the average variable cost of production (AVC).
Expert Solution
Cost of production (C) at 500 units = total fixed cost + total variable cost = 1,600+0.6×5000.8≈1,686.561,600+0.6×5000.8≈1,686.56
Variable cost of production (VC) at 500 units = 0.6×5000.8≈86.560.6×5000.8≈86.56
Marginal cost of production (MC) at 500 units = Cost of production at 500 units - Cost of production at 499 units = VC at 500 units - VC at 499 units = 0.6×5000.8−0.6×4990.8≈0.140.6×5000.8−0.6×4990.8≈0.14
Average fixed cost of production = total fixed cost / production volume = 1,600 / 500 = 3.20
Average variable cost of production = total variable cost / production volume = (0.6×5000.8)/500≈0.17
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