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Gail works in a flower shop, where she produces 10 floral arrangements per hour
Gail works in a flower shop, where she produces 10 floral arrangements per hour. She is paid $10 per hour for the first eight hours she works and $15 an hour for each additional hour she works. What is the firm's cost function? What are its AC, AVC, and MC functions? Draw the AC, AVC, and MC curves.
Expert Solution
Cost/Unit=$1010=$1/hourAdditionalCost=$1510=$1.5/hourCost/Unit=$1010=$1/hourAdditionalCost=$1510=$1.5/hour
If additional hour of working is X then the Cost function will be:
TC=$80+$15×XTC=$80+$15×X
FixedCost=8hours×$10=$80FixedCost=8hours×$10=$80
Where, $80 is the cost of 8 hours of working and $15 is an additional cost for 'x' hours of working.
AC=TCNumberofhours=$80x+$15AC=TCNumberofhours=$80x+$15
AVC=TotalVariableCostNumberofworkinghours=TVCx=$15AVC=TotalVariableCostNumberofworkinghours=TVCx=$15
MC=ΔTCΔx=15MC=ΔTCΔx=15
Since, TC=$15×ΔxTC=$15×Δx
Draw the AC, AVC, and MC curves.
The abbreviation AC stands for Average Cost, the abbreviation AVC stands for Average Variable Cost and the abbreviation MC stands for Marginal Cost. The all the three plotted on the below graph. Since, the value of AVC and MC are similar the curve for both AVC and MC is same.
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