Upcoming quiz for Park Econ

Terms in this set (53)

What is the total fixed cost? What is the total variable cost?
The fixed cost is 100, what you will pay outright. Does not have a Q attached to it.
Variable cost has a Q attached to it. The costs associated with producing additional goods.

What is the total cost when the output Q = 4?
Use calculator to plug 4 in for Q.
You get 172.
When you draw TC on the Cost-Output plane where cost is the vertical axis and Quantity is the horizontal axis... you can just plug quadratic into your TI-84 plus

To find average cost when Q = 4
We figured out that the cost of producing 4 units is 172 so to find the average cost we take 172/4 and get 43.

Using the graph, find the level of output that minimizes the AC. What is the value of AC at that output. In this case we can use our calculator to see what Q gives us lowest AC. Or we can go through and plug in Quantities. In this case, the best option is 5 in which the AC is 42. You produce where MC=AC... this is the break even price where slope is 0.

Then asks what is marginal cost when Q = 4. Marginal cost is change in total cost/change in quantity
So the marginal cost is 30.... (172-142)/1 = 30

At Q = 4 the marginal cost is 38 which is less than the AC so this tells us that the AC is still falling.

Calculating the MC when the output is equal to the level that minimizes the AC that you found earlier.
MC will equal AC... where AC is minimized.

At Q = 6 the marginal cost is greater than the AC, and this tells us that the AC is rising.

In terms of drawing AC and MC curve on a cost output plane, AC will be a U shape and MC will be a linear line with a slope of 8. They will intersect where AC slope = 0. The flat part of the U of AC is where they intersect.

The minimum price of salt Great Neck needs to get to operate without losing money or to "break even" is $42. Where Q = 5 and TC = 210. 210/5 = 42.