Purchase Solution

Costs of Production: Fixed, variable and total costs

Not what you're looking for?

Ask Custom Question

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) = 10 + 10Q + 10Q2 + 10Q3
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):

a. Define fixed cost and offer an example. Next, compute the fixed cost of producing 20 units of output using the cost function above.
b. Define variable cost and offer an example. Next compute the variable cost of producing 5 units of output using the cost function above.
c. Define total cost and then compute the total cost of producing 5 units of output using the cost function above
d. Define and compute the average fixed cost of producing 5 units of output
e. Define and compute the average variable cost of producing 5 units of output
f. Define and compute the average total cost of producing 5 units of output
g. Define marginal cost an offer an example. Next, compute the marginal cost when Q = 5, using the cost function above

Purchase this Solution
Solution Summary

Computation of various types of costs given a total cost function.

Solution Preview

a) Fixed cost is the portion of total cost that does not depend on output, it's not 0 when the firm produces nothing and it doesn't change with changes in Q. Example: rent.
In the function, the part that doesn't depend on Q is 10 (or you can solve it by saying: when Q=0, TC = FC, plug in 0 for Q ==> TC = FC = 10). It's regardless if Q is 20 or any other number.

b) Variable cost is the portion of total cost that depends on ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • Production Costs for General Motors

    208646 Cost of production for GM: explain variable, fixed, average, marginal, total cost Use GM (General Motors) as an example, explain variable, fixed, average, marginal, and total cost of production.

  • Relationship between Fixed and Variable Costs

    Flexible budget is the budget which denotes the sales, fixed costs and variable costs for the different levels of production. Fixed costs are costs which remain constant in total for the different levels of utilization of present capacity.

  • Flexible budget lends itself to cost-volume-profit analysis

    Flexible budget is the budget which denotes the sales, fixed costs and variable costs for the different levels of production. Fixed costs are costs which remain constant in total for the different levels of utilization of present capacity.

  • High-Low Profit Equation

    Each unit (a pair of speakers) sells for $900 Below is information on production/sales and costs for 2010. "Production and Sales in Units" "Production Costs" "Selling and Admin.

  • Changes to total fixed costs due to production level changes

    168345 Amount of Total Fixed Cost Based on Production Levels At a production level of 5,600 units a project has total costs of $89,000. The variable cost per unit is $11.20.

  • High-low method of cost estimation

    variable costs, product costs, and sunk costs fixed costs, variable costs, and mixed costs variable costs, period costs, and differential costs variable costs, sunk costs, and opportunity costs 2.

  • High-low method-missing amounts

    July December Total variable costs component in mixed cost $7,000 $14,000 Total fixed costs component in mixed costs $3,000 $3,000 Cost formula for mixed costs = $1.40 X + $3,000 Total costs

  • CVP Analysis - Graph and Mixed Costs

    Level of production 950 units 3000 units Total mixed costs: $ 90000 $93000 As we know that fixed cost in total amount will be same in all level of production and variable cost per unit remains constant for all the

  • Model of Short-Run Cost Functions

    total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and marginal cost (MC).

  • Break even point, CVP analysis

    Level of production 950 units 3000 units Total mixed costs : $ 90000 $93000 As we know that fixed cost in total amount will be same in all level of production and variable cost per unit remais constant for all

View More Related Solutions