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Cost theory - numerical


Question 1

Given the following table of costs:

Output 0 1 2 3 4 5
Total cost 50 80 100 150 250 750

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.

Question 2

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.