Question

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 Q² + .0000001 Q³ 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?

Answer 1