Cost theory - numerical
Given the following table of costs:
Calculate the following:
(i) Fixed cost
(ii) Average cost of production
(iii) Variable cost per unit
(iv) Marginal cost
Plot all the cost curves on a single graph, and determine where diminishing returns sets in.
A firm manufactures cars at its plant in Swindon. At a capacity of 100 cars per week it knows that it has an assembly cost of £5,000 per car. It needs to expand production and does a series of design and cost exercises. The results are summarised below.
|Output (cars per week)||200||400||600||800||1,000||1,200||1,400||1,600|
|Assembly cost (£ per car)||3,000||2,500||2,300||2,200||2,000||2,400||2,800||4,000|
(i) Plot the cost curve for the possible factory extensions.
(ii) Is this a short run or long run cost curve?
(iii) Explain why this curve is U shaped.