# Questions tagged [cost]

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### Is it true that if marginal cost is constant, then average variable cost is also constant and equals marginal cost?

I'm inclined to think yes because marginal cost only depends on variable cost (fixed costs don't matter), but I'm not 100% certain. Basically, my thought process is that marginal cost of producing one ...
3k views

### Does a store suffering increased theft generally cause higher prices?

If a store suffers an increase in theft, will it generally lead to higher prices at that store? My answer is that prices should have already been set to maximize the trade off between profit-per-sale ...
8 views

### Levelized cost of energy - why discount the amount of electricity as well

According to Wikipedia, the levelized cost of electricity is a measure of the average net present cost of electricity generation for a generating plant over its lifetime. According to the formula ...
599 views

### Fixed cost of a firm

Suppose that a firm has a total cost function given by: $TC(q) = \frac{5}{q+1} + 5 + 5q + q^2$. What is the fixed cost? I seem to be able to come up with two "answers", which cannot be correct. My ...
32 views

### Will a shift in the average total cost curve mean that the marginal cost curve will also shift up?

I understand the basic concept of marginal cost and average total cost. I am currently learning about costs curve for an oligopoly I read online that the marginal cost is not determined by fixed ...
133 views

### Deriving long-run cost functions from production function

Suppose that I have a production function $(aK + bL)^3$ in a perfect competition where a and b are constants. I am confused on how to obtain the long-run cost function from this production function ...
481 views

### Fixed costs in the long run

Can anyone please help me understand how fixed costs in the long run are zero? In Microeconomics by J. M. Perloff, the author gives the example of a factory's rent and says that if we are talking ...
27 views

### Are there any economic theories around the concept of companies focusing on that which is easier to calcuate?

A lot of the organisations I have worked for have focused on that which is easy to calculate. For example, direct cost savings are often easy to calculate, but analysing the wider implications of a ...
14 views

### How do you calculate the cost of down time in production?

We are looking at a process that will significantly reduce down time in production for (at least) one of our products. In addition to the saved labor and material costs, is there a way to calculate ...
159 views

### Is it possible that the minimum point of a short run cost curve does not touch the long run cost curve?

In the answer to this question, the answerer said "the minimum point of a short run cost curve will be above the long run cost curve". Is it true? If so, how would it be so? I thought that if e.g. ...
65 views

### Why is the opportunity cost 0 in this case?

My book says that the opportunity cost of purchase of a specialized equipment that has no alternative use is zero and hence such an expenditure is a sunk cost. However, while calculating the user cost ...
634 views

### Why is the price of capital ‘r’ ? (From Cost function)

according to the Cost formula in microeconomics class, Total Fixed Cost is represented as “rK” (K as in unchanging, fixed K) now my economics teacher tells me this ‘r’ is the interest rate at which ...
161 views

### Interpeting equivalent annual cash flows

So i have this question: RainMan Inc. is in the business of producing rain upon request. They must decide between two investment projects; a new airplane for seeding rain clouds or a new weather ...
18 views

### Trade cost on Endowment model

I think in real endowment model, if there's trade cost as 't', then the MRS should be really small or large to make a consumer trade his endowment goods. Is there any model include this trade cost or ...
44 views

### Costs of transportation

I assume that it makes sense to ask for the energy costs of transportation of different goods per weight and volumetric mass density, depending on the means of transportation (truck, train, ship, etc.)...
52 views

### Marginal Cost Calculation issue

I calculated the Marginal cost for the below question. But it seems the results are wrong After coming up with an innovative idea for a new product, you paid 4000 to an industrial designer to draw ...
57 views

### fixed an marginal cost calculation issue

I'm trying to solve a question that is quite difficult for me. I did part of the question but, bit difficult to decide the exact answer for the below question. After coming up with an innovative ...
284 views

### Can implicit costs be negative?

I think that conventionally implicit costs are positive but if for example we consider a negative interest rate as an implicit cost, the implicit cost would be negative. Is this true? Can implicit ...
265 views

### In perfect competition, why is there economic loss if marginal cost > marginal revenue?

Here's a graph for reference: In the left graph, I read from a book (CFA L1 notes) that At any output above the quantity where $MR = MC$, the firm will be generating losses on its marginal ...
116 views

### Vertical Marginal Cost curves

When would a marginal cost curve be vertical? I understand this happens when the marginal cost jumps, from say 0 to 100, but in such a case, I think there should be a discontinuity rather than a ...
210 views

### Decision over “max” production function:

I've been presented with the following problem: $$y=3(x_3)^{\frac13}(\max\{x_1,8x_2\})^{\frac13}$$ And the objective is to both maximize profit and minimize cost. First of all, if the problems are ...
37 views

### Excessive entry without fixed costs

Mankiw & Whinston (1986) show that the market may contain too many firms. The intuition is that if a firm charges a suboptimal high price, a rival has a demand curve that is "too high" and can ...
3k views

### EOQ - how to calculate holding cost

This is very simple, however, I have the following setup Suppose that the company ABC has a product that shows a constant annual demand rate of 3600 items. One item costs £3. Ordering cost is £20 per ...
172 views

### Why don't public transport networks have more routes to each terminal in order to reduce the number of transfers?

When using public transport, we often need to transfer to a different route during of the journey. These transfers have costs – I can think of the following, but there may be more. If we're reading, ...
190 views

### How does the EBQ formular come out?

I figured out how the economic order quantity (EOQ) formula comes out. I know it is quite similar with economic batch quantity (EBQ), sometimes termed economic production quantity (EPQ). I just don't ...
215 views

### How to track costs and calculate price?

I run a large Massively Multiplayer Online (MMO) gaming community and one of the services we’ve try to provide to our members is crafting. One of the challenges of this has been determining the price ...
573 views

### Does Average Total Cost (ATC) include implicit opportunity costs?

Does the average total cost include opportunity costs? If so, are these opportunity costs considered fixed costs or variable costs? How are they calculated.
73 views

### Is there a cost to running the NewYork Stock Exchange? Does it affect the price of stocks sold on the exchange?

Is there a cost to running the New York Stock Exchange? For example electricity costs, management costs, rents on the building(s). How do these costs (if any) affect the price of stocks sold on the ...
721 views

### Why is railway electrification in North America far less common than in Europe?

Why is railway electrification in North America far less common than in Europe? I suspect that the answer has something to do with the economics of electrification. In Europe, railway ...
129 views

### Question on an argument in “The Myth of Absolute Advantage”

Brandis (1967) argues that "absolute advantage does not exist" and "that it is a logical impossibility". (See also comment, comment, reply.) My question here is very narrow and specific. I do not ...
4k views

### Understanding the shape of a Marginal Cost Curve

My class IB has just discussed allocative efficiency and hence consumer and producer supply. They explained the concepts with a diagram like this: It all made perfect sense to me until it was ...
2k views

### Is it possible to have constant marginal cost and decreasing average cost simultaneously? [closed]

I thought about possibility of occurring such event in the case of presence of fixed costs, but I would like to know others opinions.
905 views

### Proof that for increasing AC MC(Q)>AC(Q) at any Q>0? [closed]

I know the "common sense" proof, but how can we prove it algebraically?
403 views

### Monopoly marginal cost [closed]

I have recently been stumped on a microeconomics question where it gives a monopoly firm, its operating ATC (average total cost), price (average revenue), and quantity traded. First thing it wants me ...
192 views

### How to Graph Short-Run Average Cost?

I've learnt to roughly draw graphs of various functions like isoquants of Cobb Douglas function, i.e., $k=√q/L$. Here first derivative is negative so it's downward sloping and second derivative is ...
796 views

### Are all points on the Long Run Average Cost (LRAC) curve productively efficient?

The definition of productive efficiency is that any given output is produced for the lowest possible cost. In the short run, only the minimum point on the SRAC curve is productively efficient - this ...
383 views

### How do I calculate the cost per usage of a machine?

If you buy a machine for 10.000 dollars, which costs as a yearly write-off 2000 dollars, how do I calculate the cost per usage of a machine? Do you just divide the the yearly write-off by the times ...
3k views

### Why is ATC tangent to Demand in a Monopolistic or Mopolistically Competitive Firm Making Zero Profit?

I understand that the Average Total Cost is equivalent to demand in a zero profiting monopoly or monopolistically competitive firm in order for there to be zero profits (when ATC = P at a given ...
1k views

### Optimal production level for a typical firm in long-run

Assuming all firms have identical cost functions. Now suppose there is an increasing shift in the demand curve. As we all know that for increasing costs case, both average costs (AC) and marginal ...
586 views

### Derivation long run cost function of three inputs with Leontief-like characteristics

Suppose that a firm produces a good using capital, skilled labor, and unskilled labor. Let $K$ denote the amount of capital,$L_1$ unskilled labor, $L_2$ skilled labor. The production function is \$f(...
4k views

### Why is the short run average cost curve not a tangent to the long run average cost curve at the lowest point on the short run average cost curve?

The diagram from the Varian textbook shows that the SRAC curve is tangent to the LRAC curve at a point which is not the bottom of the SRAC curve. It would be really helpful if someone could explain ...
12k views

### Can one Calculate Fixed and Variable Cost From TC and Quantity Alone?

I have been asked a question and believe there is a mistake in the problem. I have been given a table of values, Quantity and corresponding Total cost. From those numbers I can easily calculate the ...
34 views

### Where to start, to know the cost, in hours of work, necessary to produce one more car (or any other good)?

Let's say I want to buy a car. It costs that, so I can know that, for example, I have to work 3 months to pay for it. But does the car really needs three months of human work to be build? What is the ...
473 views

### Is there any difference between using LRAC and LRATC in a long-run market structure diagram?

I am currently being taught to use average total cost (ATC) to label the U-shaped curve in the short-run on a market structure diagram, and long-run average cost (LRAC) for the equivalent curve in a ...
50 views

### Find change in gross profit after price change

How do you solve this question? A company has 3 products. They contribute to 30%, 30% and 40% of sales respectively. They have profit margins of 15%, 30%, and 50% respectively. If the ...
107 views

### What would make a restaurant offer all-day breakfast?

Some restaurants particularly fast food ones offer breakfast food only during, well, breakfast hours. Other restaurants however offer breakfast food throughout their opening hours. Some restaurants ...
43 views

This may be a very basic question. From a producer's standpoint, what are the theoretical or empirical results on the comparison of cost between buying assembled or full solutions from suppliers vs. ...
127 views

### What is the difference between the discrete choice method and the generalised cost method in transport planning?

I have been using the generalised cost method in an agent based model. The generalised cost method enables each individual agent to make a decision on what mode of transport it will take given a range ...