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Average Cost Minimization

Average Cost Minimization. Better Buys, Inc., is a leading discount retailer of wide-screen digital and cable-ready plasma HDTVs. Revenue and cost relations for a popular 55-inch model are:

TR = $4,500Q ï?­ $0.1Q2

MR = �TR/�Q = $4,500 � $0.2Q

TC = $2,000,000 + $1,500Q + $0.5Q2

MC = �TC/�Q = $1,500 + $1Q

A. Calculate output, marginal cost, average cost, price, and profit at the average cost-minimizing activity level.
B. Calculate these values at the profit-maximizing activity level.
C. Compare and discuss your answers to parts A and B.

Solution Summary

The solution provides the necessary cost calculations.