# Questions tagged [cost]

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### Why is the derivative used to represent marginal cost instead of the difference?

Marginal cost is defined as "the change in the total cost that arises when the quantity produced is incremented by one unit." And given a total cost function $C(q)$ that's differentiable, the marginal ...
957 views

### Why don't Burgers cost 5 cents?

In this blog post, economist Bob Murphy raises a puzzle involving the principle that in a competitive market, the price equals the marginal cost: There’s a general principle from intro to ...
781 views

### Should Costs of Travel to Buy Goods be Regarded as Transaction Costs?

Within the approach of New Institutional Economics associated with Oliver Williamson and others, emphasis is placed on transaction costs as a key factor in explaining why different forms of economic ...
32k views

### How to derive firm's cost function from production function?

I recently learned how to solve the following type of problem using the method of Lagrangian multipliers: Given a consumer with utility function $u(x,y)$, wealth $w$, prices $p =(p_x,p_y)$, budget ...
142 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, ...
3k 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 ...
71 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 ...
4k views

### Proving AC is minimized when MC=AC

I am trying to prove that AC is mininimized when AC=MC This is how far I am: FOC: Showing what I want to prove SOC: This has to be positive in order to ensure that AC is minimized, but how can i ...
330 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 ...
160 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 ...
1k views

### Shadow Price vs Marginal Cost

Is there a difference between the two? If so can you intuitively explain it? I see internet resources saying these are equivalent, but I thought I remember someone telling me once shadow price was ...
88 views

### Homothetic Production Technologies

Can someone suggest a good resource on homothetic technologies and what properties they imply about cost function, profit function, input demands, output supply etc? Also is it possible to have ...
1k views

### Optimize by MR = MC vs TR = TC

I know that I should optimize production by solving $MR = MC$ with respect to $Q$. But if $TR > TC$, I am making a profit. Why is not enough to just solve $TR = TC$ with respect to $Q$?
6k views

### Why does marginal cost (derivative of total cost) differ from variable cost at each level?

Why does the marginal cost equation (as the derivative of total cost equation) make predictions of variable costs that are very different from costs calculated using the Total Cost equation? Marginal ...
110 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 ...
18k views

### How do I calculate quantity to minimize long-run average total cost?

I have a formula for the long-run total cost curve, $$TC(Q) = 6000Q + 40Q^2 + Q^3$$ and I'm trying to find the quantity that minimizes the long-run average total cost. I assume I'm trying to find ...
99 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. ...
1k views

### How to derive cubic cost function from a problem of constrained optimization?

The cubic total cost function usually take the form $TC(q)=a+bq+cq^{2}+dq^{3} \qquad a,b,d>0, c<0$ and $c^{2}<4bd$ I know that from a constraint maximization problem $min\quad wL+vK$ ...
33 views

### How to define best value?

I'm trying to define which hotel offers the best value. Let's say we have two hotels - A and B. For A, you pay $10 a night and the rating for the hotel is 9.8. For B, you pay$8 a night and the ...