# managerial economics

## managerial economics

﻿CAP RESPONSES

1. Total cost: All costs, both fixed and variable, involved in production/output.
2. A firm has just built a plant, which cost \$1,000 and the labour hr/rate is \$5.00.
Complete the table.

Number of Worker Hours
(L)
Output
(Q)
Marginal Product
(MP = xQ/xL)
Fixed Cost
FC
Variable Cost
VC = (L X \$5)
Total Cost
FC + VC
Marginal Cost
MC = xTC/xQ
Average Variable Cost
AVC = VC/Q
Average Total Cost
ATC = TC/Q
0
0

1000
0
1000
-
-
-
50
400
1.6
1000
250
1250
0.63
0.63
3.13
100
900
1.8
1000
500
1500
0.50
0.56
1.67
150
1300
1.73
1000
750
1750
0.63
0.58
1.35
200
1600
1.6
1000
1000
2000
0.83
0.63
1.25
250
1800
1.44
1000
1250
2250
1.25
0.69
1.25
300
1900
1.27
1000
1500
2500
2.50
0.79
1.32
350
1950
1.11
1000
1750
2750
5.00
0.92
1.41

3. Given that the short-run cost function is TC = 125 + 2q + q2; define and calculate the following:

a) fixed cost: Cost of fixed factors of production that remain fixed in the short run irrespective of changes in output. Fixed cost = 125
b) total variable cost: Total costs that change for each change in output. Total variable cost = 2q + q2
c) average cost: The total cost (both fixed and variable) for producing each unit of output. Ac = total cost divided by the total output. AC = TC/Q = (125 + 2q + q2)/q = 2 + 125/q + q
d) average fixed cost: The amount of fixed cost for producing one unit of output. AFC = TFC/Q = 125/Q
e) average variable cost: The variable cost for each unit of output. AVC = TVC/Q = (2q + q2)/q = 2 + q
f) marginal cost: Change in total cost by one unit of output. MC = dTC/dQ [differentiate TVC once]. MC = 2 + 2q
g) marginal revenue: The change in revenue by the last unit of output. There is not enough information to calculate marginal revenue.
Sources:
E- Tutor Notes
Course Material
Baye, Michael R. Managerial Economics and Business Strategy. 7e. New...