Ecn Wp Carey 502

Submitted by :

Vaibhav Sharma.

1206047163

Submitted by :

Vaibhav Sharma.

1206047163

ECN 502 – Problem set 2

ECN 502 – Problem set 2

Problem 1:

C(Q) = 100 + 20Q + 15Q2 + 10Q3

a) Fixed cost of producing 10 units of output FC= $100

b) Variabe cost of producing 10 Units is:

VC = 20(10)+ 15(10)2 + 10(10)3

= 200 + 1500 + 10000

= $11700

c) Total Cost of producing 10 Units = VC + FC

= 11700+ 100

= $11800

d) Average FC of producing 10 units = FC/ 10

= 100/10 = 10

e) Average VC of producing 10 units = VC/ 10

= 11700/10 = 1170

f) Average TC of producing 10 units = TC/ 10

= 11800/10 = 1180

g) Marginal cost

MC(Q) = 20 + 30Q + 30Q2

MC(10)= 20 + 300 + 3000

= $3320

Problem 6:

Q | FC | VC | TC | AFC | AVC | ATC | MC |

0 | $15,000 | 0 | $15,000 | - | $0 | 0 | - |

100 | $15,000 | $15,000 | 30000 | $150 | $150 | 300 | 300 |

200 | $15,000 | $25,000 | 40000 | $75 | $125 | 200 | -100 |

300 | $15,000 | $37,500 | 52500 | $50 | $125 | 175 | -25 |

400 | $15,000 | $75,000 | 90000 | $38 | $188 | 225 | 50 |

500 | $15,000 | $147,500 | 162500 | $30 | $295 | 325 | 100 |

600 | $15,000 | $225,000 | 240000 | $25 | $375 | 400 | 75 |

Problem 8:

Fixed costs are the costs that do not change with the changes in producing units of output, whereas variable costs are the costs that change with changes in output. Variable costs include the costs of input that may vary with output, e.g. Raw material costs. On the other hand, sunk cost is a cost that is lost forever after it has been paid.

For example:

Assume they you lease a house. Agency asks for a $10000 upfront, $5000 will be refunded when you end the lease and you don’t have to pay any monthly rent, but you have to pay for the utilities.

Fixed Cost = $10000 = the cost you have to pay irrespective of the months you stay.

Sunk cost: $10000 - $5000 = $5000. The cost that will never be refunded.

Variable cost: The utility bill will depend upon your usage of...