Question

COST MODEL: Provide the quantitative formulas for the following variables:

1. VARIABLE COST (VC)

PROFIT MODEL: Provide the quantitative formulas for the following variables:

1. OPTIMUM POINT OF PRODUCTION
2. OPTIMUM QUANTITY OF LABOR

Answer 1

1 - Quantitative formula for variable cost

= Quantity of output * variable cost of per unit of output

2 - Optimum point of production

The optimum point of production is the point at which MR = MC . If MR < MC , production should be reduced and if MR > MC , production should be increased.

3 - Optimum quantity of labor is the point at which the MRP = Wage rate. Hence the value of the marginal outout produced multiplied by price should be equal to wage rate to obtain the optimal level of quanity of labor to be hired