Question 1:

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Cost functions, a part of the definition of profit, are useful to gauge the performance of the business. Suppose an economist estimated that the cost function of a single-product firm as:

C(Q) = 40 + 4Q + 4Q² + 4Q³

Based on this information, determine the followings and show all steps (first, you must define each of the terms in the cost function, and then plug in the numbers to have your answers; not just the answers):

Hint: THE use of Graphs is recommended.

a. Define fixed cost and offer an example. Next, compute the fixed cost of producing 10 units of output using the cost function above.

b. Define variable cost and offer an example. Next compute the variable cost of producing 10 units of output using the cost function above.

c. Define total cost and then compute the total cost of producing 10 units of output using the cost function above

d. Define and compute the average fixed cost of producing 10 units of output

e. Define and compute the average variable cost of producing 10 units of output

f. Define and compute the average total cost of producing 10 units of output

g. Define marginal cost an offer an example. Next, compute the marginal cost when Q = 10, using the cost function above

Question 2

A firm's fixed costs for producing 0 units of output and its average total cost of producing different output levels are summarized in the tale below.

Complete the table to find the fixed cost, variable cost, total cost, average fixed cost, average variable cost, and marginal cost at all levels of output.

Q  FC VC TC AFC AVC ATC MC

0                                      -

10    $200                       $25

20                                   15

30                                  12

40                                   17

50                                  29

60                                   37