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Cost-benefit

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An accountant for a 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)=100+10Q+Q2 , 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 2 units of output?
b. What is the average variable cost of producing 2 units of output?
c. What is the average total cost of producing 2 units of output?
d. What is the marginal cost of producing 2 units of output?
e. What is the relation between the answers to (a), (b), and (c) above? Is this a general property of average cost curves?

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Cost-benefit is assesed.

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a.What is the average fixed cost of producing 2 units of output?
Fixed cost is equal to total costs at zero level of activity.
So, FC=TC at Q=0
FC=100+10*0*0^2=100
Average fixed cost=AFC=FC/Q=100/Q
Now let us see value of AFC at ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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