a)
To evaluate the long run
a)
Explanation of Solution
Following is the average variable cost (AVC):
Total Variable cost (TVC)
Introduction: The long-run average cost (LRAC) curve shows the lowest cost per unit for the business at each output point, assuming all production factors are variable. The LRAC curve assumes the firm has selected the optimal mix of factors.
b)
To evaluate the long run marginal cost function for electricity generation.
b)
Explanation of Solution
Differentiating the total variable cost with respect to Q:
Introduction: Long-run marginal cost is an enterprise metric that represents the long-run average cost per unit of output, where all inputs are considered variable and the scale of production is variable. The long-run average cost curve displays the lowest overall cost for long-run generating a given production point.
c)
To evaluate the short run average variable cost and marginal cost functions for electricity generation while holding plant size constant at 150,000 kilowatts
c)
Explanation of Solution
Size of plant constant at 150,000 kilowatt and marginal cost:
Introduction: Average variable cost is the overall variable cost per unit of output incurred when a business participates in the manufacture of short runs. It can be observed in two ways. Because average variable cost is total variable cost per output unit, this can be detected by dividing total variable cost by output quantity.
d)
To evaluate the output level that minimizes short run average variable costs for a plant size equal to 150,000 kilowatts
d)
Explanation of Solution
On differentiating the short run average variable cost and equating it with zero:
Introduction: Average variable cost is the overall variable cost per unit of output incurred when a business participates in the manufacture of short runs. It can be observed in two ways. Because average variable cost is total variable cost per output unit, this can be detected by dividing total variable cost by output quantity.
d)
To evaluate the output level that minimizes short run average variable costs for a plant size equal to 150,000 kilowatts
d)
Explanation of Solution
Output that minimize the short run average variable cost:
Following is the average variable cost:
On differentiating the short run average variable cost and equating it with zero:
Introduction: Average variable cost is the overall variable cost per unit of output incurred when a business participates in the manufacture of short runs. It can be observed in two ways. Because average variable cost is total variable cost per output unit, this can be detected by dividing total variable cost by output quantity.
e)
To evaluate the short run average variable cost and marginal cost at the output level obtained in part (d).
e)
Explanation of Solution
Short run average cost:
Introduction: Average variable cost is the overall variable cost per unit of output incurred when a business participates in the manufacture of short runs. It can be observed in two ways. Because average variable cost is total variable cost per output unit, this can be detected by dividing total variable cost by output quantity.
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Chapter 9 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
- Consider the following function: Ĉ = 0.03q + 6 + 200/q - determine the approximate cost to increase production from 200 units to 201 units - determine the function of marginal costarrow_forwardThe monthly demand equation for an electric utility company is estimated to be p=55- (105)x, where p is measured in dollars and x is measured in thousands of killowatt-hours. The utility has fixed costs of $1,000,000 per month and variable costs of $27 per 1000 kilowatt-hours of electricity generated, so the cost function is C(x)=1-10° +27x. (a) Find the value of x and the corresponding price for 1000 kilowatt-hours that maximize the utility's profit. (b) Suppose that the rising fuel costs increase the utility's variable costs from $27 to $39, so its new cost function is C₁(x)=1.10° +39x. Should the utility pass all this increase of $12 per thousand kilowatt-hours on to the consumers?arrow_forwardIf C = 0.0001Q2 + 3Q + 6000 is a total-cost function, find the marginal cost when Q = 100.arrow_forward
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- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning