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The following is the total cost function of a business: C = f(0) = Q3 – 4Q2 + 12Q a) What amount should the business firm produce to minimize the average total cost? Show all the steps in your calculation b) How can a business firm use the information you found above? Question 7 (2 marks) The following is the production function of a business: Q = f(K,L) = 5K0420
The following is the total cost function of a business: C = f(0) = Q3 – 4Q2 + 12Q a) What amount should the business firm produce to minimize the average total cost? Show all the steps in your calculation b) How can a business firm use the information you found above? Question 7 (2 marks) The following is the production function of a business: Q = f(K,L) = 5K0420.3 What are all the business information you can obtain from the given production function? There is no need to perform any mathematical calculations. Answer in words.
Question 6 (3 marks) You are the manager of a business firm. You have two employees working under your supervision. There are four tasks (jobs) that you have to divide between the two employees. Discuss the concept of optimization using the given scenario. What are the choice variables and what could be the objective function in this case? There is no need to perform any calculations.
Expert Solution
Question 3
Given the total cost function:
C=Q3-4Q2+12Q
a)
The average costs of the firm are given by dividing the total cost of the firm by the quantity. Therefore, the average costs of the firm are given as-
AC=Q2-4Q+12
To minimize the average costs we will find the first order condition as follows-
AC'Q=2Q-4=0
AC'Q=2Q=4
Q=2
b)
The business can use this information of minimized average costs as setting the prices close to the average costs is a way of maintaining normal profits. It can be used to maximize sales in order to gain the market share.
Therefore, in order to maximize the sales, the firm must set the price equal to the minimized average costs.
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