ECON 451 Economics for Managers Chapter 6
Your boss would like to expand distribution of BBB throughout all of North America. Before doing so, they wanted to ensure growth would not adversely affect costs so they hired a consultant to analyze total cost for production. They explained to the consultant they wanted to keep production in Vermillion and add capital and labor as necessary and would like to see costs including all inputs, production, marketing, and distribution. The consultant reported the following total weekly cost function based on this requirement:
TC = 3,500 + 2.10 Q  .0003 Q^{2} + .0000001 Q^{3} where Q is in cases (24 bottles) of BBB
What is the equation for Marginal Cost?
What is the equation for Average Total Cost?
What are Total Cost, Marginal Cost, and Average Total Cost for the following units of output (in dollars)?
Total Cost 
Average Total Cost 
Marginal Cost 

1000th Case 

2000th Case 

3000th Case 

4000th Case 

5000th Case 
Sketch or use Excel to sketch a graph for Total Cost (in one graph). Also sketch Marginal Cost and Average Total Cost (in a second graph). Be sure to label all axes, note any points of inflection or intersection, and make sure the graphs line up as they should vertically.
What does this cost function tell you about the characteristics of the production function? Can you make any production recommendations based on what you observe?
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