Question

An accountant for Abington Cubic Car Rental Company was recently asked to report the firm's costs...

An accountant for Abington Cubic Car Rental Company was recently asked to report the firm's costs of producing various levels of output. The accountant knows that the most recent estimate available of the firm's cost function is: C(Q) = 150,000 + 25Q + 8Q2 + 6Q3 Where costs are measured in thousands of dollars and output is measured in thousands of hours rented.

a. What is the average fixed cost of producing 20 units of output?

b. What is the average variable cost of producing 20 units of output?

c. What is the average total cost of producing 20 units of output?

d. What is the marginal cost of producing 20 units of output?

e. What is the relation between the answers to a., b., and c. above?

f. To expand into a new business opportunity, Abington Cubic Car Rental Company must obtain a license from the township for $20,000. The license is transferable, but only $3,000 is refundable in the event the firm does not use the license. What are the firm's fixed costs? Sunk costs? Suppose Abington Cubic Car Rental Company obtains a license but then decides against opening the business. If another firm offers the manager $2,000 for the license, should Abington-Telecall accept the offer?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

C =  150,000 + 25Q + 8Q2 + 6Q3
At Q = 20; C = 150,000 + 25(20) + 8(20)2 + 6(20)3 = 150,000 + 500 + 3200 + 48000 = 201,700
Total Fixed Cost(TFC) = 150,000
Total Variable Cost, TVC = 25Q + 8Q2 + 6Q3 = 25(20) + 8(20)2 + 6(20)3 = 500 + 3200 + 48000 = 51,700

a. Average Fixed Cost, AFC = TFC/Q = 150,000/20 = 7500

b. Average Variable Cost, AVC = TVC/Q = 51,700/20 = 2585

c. Average Total Cost, ATC = C/Q = 201,700/20 = 10,085

d. Marginal cost. MC =
At Q = 20, MC = 25 + 16(20) + 18(20)2 = 25 + 320 + 7200 = 7545

e. We can see from a, b, and c that ATC = AVC + AFC
As, AVC + AFC = 2585 + 7500 = 10,085 = ATC

Note: Post four subparts at a time.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
9. Average cost in the long-run is defined as _____. TVC/Q TC/Q TVC + TFC/Q none...
9. Average cost in the long-run is defined as _____. TVC/Q TC/Q TVC + TFC/Q none of the above 10. Economies of scale is a characteristic of production where ______. average costs increase as output increases total cost decreases as output increases average cost decreases as output increases average cost decreases as output decreases 11. Which of the following factors of production is more likely to be fixed in the short run? The number of workers. Changes in electricity consumed....
Q-1: Sunrise Juice Company sells its output in a perfectly competitive market. The firm's total cost...
Q-1: Sunrise Juice Company sells its output in a perfectly competitive market. The firm's total cost function is given in the following schedule: Output Total Cost Marginal Cost Average Total (Units) ($) ($/unit) Cost ($/unit) 0 50 -- -- 10 120 7=(120-50)/(10-0) 12=(120-10) 20 170 ? ? 30 210 ? ? 40 260 ? ? 50 330 ? ? 60 430 ? ? Total costs include a "normal" return on the time (labor services) and capital that the owner has...
Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs,...
Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $1.5 million, 50 earth stations are produced and sold each year, profits total $600,000, and the firm's assets (all equity financed) are $6 million. The firm estimates that it can change its production process, adding $3 million to assets and $570,000 to fixed operating costs. This change will reduce variable costs per unit by $10,000 and increase output by 25 units. However,...
Suppose a company has $400 of fixed costs and a constant marginal cost of 10 cents....
Suppose a company has $400 of fixed costs and a constant marginal cost of 10 cents. What are average total costs (ATC) at: Instructions: Round your responses to two decimal places. a. Output of 10 units? b. Output of 100 units? c. Output of 1,000 units?
Show working 21) The relationship Q = f(K, L) is an example of a A) cost...
Show working 21) The relationship Q = f(K, L) is an example of a A) cost function. B) production function. C) demand equation. D) profit equation. 28) After some point successive equal increases in a variable factor of production, when added to a fixed amount of inputs, will result in smaller increases in output. This is known as A) the long run. B) the law of diminishing marginal product. C) marginal physical product. D) short run average cost. 33) Suppose...
As a firm increases the level of output that it produces, short-run average fixed cost rises...
As a firm increases the level of output that it produces, short-run average fixed cost rises and then falls. remains constant since fixed costs are constant. decreases. decreases up to a particular level of output and then increases. Flag this Question Question 22 pts Suppose that a firm is currently producing 500 units of output. At this level of output, TVC = $1,000 and TFC = $2,500. What is the firms ATC? $2 $5 $7 $10 Flag this Question Question...
Which of the following is most likely to be a variable cost for a manufacturer?     A....
Which of the following is most likely to be a variable cost for a manufacturer?     A. energy costs.                                                                  C. rental payments on computer equipment.     B. interest payments on business loans.                             D. real estate taxes. 3. If a firm’s accounting profit is positive,     A. its economic profit will also be positive.     B. its economic profit will be positive if the accounting profit exceeds implicit costs.            C. its revenues cover both explicit and implicit costs. 4. Economic profit can be best defined as:     A....
​(Operating leverage​) The Quarles Distributing Company manufactures an assortment of cold air intake systems for​ high-performance...
​(Operating leverage​) The Quarles Distributing Company manufactures an assortment of cold air intake systems for​ high-performance engines. The average selling price for the various units is ​$600 . The associated variable cost is ​$200 per unit. Fixed costs for the firm average $ 200 comma 000 annually. a. What is the​ break-even point in units for the​ company? b. What is the dollar sales volume the firm must achieve to reach the​ break-even point? c. What is the degree of...
Q95. If average total cost is $180/unit, quantity produced is 20 units and total fixed cost...
Q95. If average total cost is $180/unit, quantity produced is 20 units and total fixed cost is $1500, what is the total variable cost for the output of 20 units? -------------------------------------- Q96A. A firm's fixed costs are $194,000, and it sold 1900 units at $155 each. The total variable costs were $99,000. What is the net   income or loss of the firm? ------------------------------------------------------------- Q99B. When there is an upward shift in demand, equilibrium price ------------------------- and equilibrium quantity ----------------------- a....
30. Tom owns and operates a classy bistro restaurant, Tom's Bistro, and gathers the following information...
30. Tom owns and operates a classy bistro restaurant, Tom's Bistro, and gathers the following information to make a decision on whether to stay open for business or to shut down permanently: Future operating revenues = $12 million Future operating costs = $10 million Sunk costs = $4 million Tom should: A. shut down because the operating revenues are insufficient to cover the operating costs and sunk costs. B. continue to operate because the operating revenues exceed the operating costs....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT