Question

Use the information below
Choose the most appropriate alternative answer to the questions below

to answer questions 7-9.

TC = 125000 + 7000Q - 35Q2 + 0.03Q3
where TC = total costs in dollars and Q = number of outputs in units.

7. Which statement is correct?
   (a) ATC = (125000 / Q) + 7000 - 70Q + 0.03Q2
   (b) If diminishing returns occur at the minimum MC, then the company will experience diminishing returns for Q> 583.3
   (c) The function above is a short-term cost function
   (d) All of the answers above are correct

8. If stage 2 starts at the minimum AVC point, then
(a) The company will rationally produce at an output level of less than 388.8
(b) The company will produce at least 583.3 units of output
(c) The company should produce at a rate of more than 388.8 and less from 583.3 units
(d) There is no right answer.

9. With the cost function above, which statement is correct?
(a) AFC decreases with increasing Q
(b) AVC rises when Q is above 583.3
(c) MC increases when Q is above 388.8
(d) All of the answers above are correct.

Answer 1

7. Option d) ATC=TC/Q, in short run one of the variable would be fixed

8. Option d)

Q	TC	AC	AVC	AFC	MC
583.3	-1746421	-2994.04	-3208.3333	214.298	-33778.5
583.4	-1746742	-2994.07	-3208.3332	214.2612	-33785.5
388.8	-680997	-1751.53	-2073.037	321.5021	-20181
389	-682319	-1754.03	-2075.37	321.3368	-20195

9. Option a)

Q	TC	AC	AVC	AFC	MC
388.8	-680997	-1751.53	-2073.037	321.5021	-20181
583.3	-1746421	-2994.04	-3208.333	214.298	-33778.5