Question

Assume the short run variable cost function for Japanese beer is VC=0.5q^0.67 If the fixed cost? (F) is ?$2400 and the firm produces 400 ?units, determine the total cost of production? (C), the variable cost of production? (VC), the marginal cost of production? (MC), the average fixed cost of production? (AFC), and the average variable cost of production? (AVC). What happens to these costs if the firm increases its output to 500? Determine (C), (VC), (MC), (AFC), and (AVC) for production of 400 units and 500 units.

Answer 1

F=2400
For 400 units of output
VC=0.5(400)^0.67=27.69
TC=FC+VC=2400+27.69=2427.69
AFC=FC/Q=2400/400=6
AVC=VC/Q=27.69/400=0.069

For 500 units of output
VC=0.5(500)^0.67=32.15
TC=FC+VC=2400+32.15=2432.15
AFC=FC/Q=2400/500=4.8
AVC=VC/Q=32.15/500=0.064

MC between 400 and 500=Change in TC/Change in output
MC between 400 and 500=(2432.15-2427.69)/(500-400)=0.0446

MC can be found between two output levels so I have used 400 and 500.
An increase in output level will not affect Fixed costs
It will increases VC,TC,AVC,AFC and MC