ECO 550 Chapters 9 & 10 Check Your Understanding

#3
a. VC = AVC(Q)
VC = 1.24Q + .0033Q2 + .0000029Q3 - .000046Q2Z - .026QZ + .00018QZ2
b. MC = 1.24 + .0066Q + .0000087Q2 - .000092QZ - .026Z + .00018Z2
c. Z = 150(thousand) kilowatts
SRAVC = 1.24 + .0033Q + .0000029Q2 - .000046Q(150) - .026(150) + .00018(150)2
SRAVC = 1.39 - .0036Q + .0000029Q2SRMC = 1.24 + .0066Q + .0000087Q2 - .000092Q(150) - .026(150) + .00018(150)2SRMC = 1.39 - .0072Q + .0000087Q2
d. d(SRAVC)/dQ = 0 (condition for minimum SRAVC) = -.0036 + .0000058Q = 0 Q* = 620.7 (million) kilowatt-hours/year
e. SRAVC = 1.39 - .0036(620.7) + .0000029(620.7)2 = .27 pence
SRMC = 1.39 - .0072(620.7) + .0000087(620.7)2 = .27 pence
The two are equal, as the MC slices up through the lowest point in the AVC curve.

#4.
a. A decrease in P leads to an increase in the breakeven point.
b. An increase in V leads to an increase in the breakeven point.
c. An increase in F leads to an increase in the breakeven point.