A firm has a fixed production cost of $5000 and a constant marginal cost of production of $500 per unit produced. (a) What is the firm's total cost function? Average cost function? These functions, C(q) and AC(q) (or TC(q) and ATC(q)) describe total cost and average cost for any value of q. (b) If this firm wanted to minimize the average total cost, would it choose to be very large or very small? Explain.
Added by Jeremy B.
Step 1
The total cost function is the sum of the fixed cost and the variable cost. The variable cost is the product of the marginal cost and the quantity produced. So, the total cost function is: C(q) = 5000 + 500q Show more…
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