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Questions tagged [cost]

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3answers
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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 ...
9
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5answers
926 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 ...
9
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4answers
726 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 ...
7
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2answers
139 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, ...
6
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2answers
31k 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 ...
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2answers
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 ...
4
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1answer
3k 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 ...
4
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1answer
69 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 ...
4
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1answer
272 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 ...
4
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2answers
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 $Q$?
3
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4answers
154 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 ...
3
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1answer
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 ...
3
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1answer
42 views

Producer's cost for buying full solution vs. buying parts

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. ...
3
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1answer
87 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 ...
3
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1answer
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 ...
3
votes
1answer
5k 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 ...
3
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0answers
109 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 ...
2
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1answer
17k 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 ...
2
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2answers
98 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 ...
2
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2answers
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 $min\quad wL+vK$ ...
2
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1answer
38 views

Estimating the cost of an assett that needs to be replenished [closed]

I am working with hard drives. For simplicity, let's say all drives have the same capacity, 1TB and all cost $100. They typically last about 4 years, when they need to be replaced. They drop in ...
1
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1answer
7k 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 ...
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2answers
39 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 ...
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2answers
577 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?
1
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1answer
116 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 ...
1
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1answer
453 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(...
1
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1answer
138 views

Deducing the Total Cost function

$MC = (TC)'(q) = 3q^2 - 40q+220, \quad where \quad 1 \leq q \leq 20 $ The task is to deduce a function of $TC$, if for the production of the first item we need 291 monetary units, and to write out ...
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2answers
34 views

Why do prices of consumer products seem to rise independent of their supply?

For example, in my country, the price of coconuts steadily rises, despite the fact that we still have plenty of coconuts. The same with vegetables. Is this caused primarily by an increase in the cost ...
1
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2answers
61 views

The marginal cost function is meaningful only when the produced quantity is normalized

The cost function depends on the number of produced items. Let the value of the cost function C be in hundreds of thousands $ and the quantity is in 1,000,000 items, thus q = 1 indicates 1,000,000 ...
1
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1answer
54 views

(tax with) costs to first order

1) What does it mean that something (in this context the taxation) has (or doesn't) costs to first order? So, below is an excerpt from Romer's Advanced Macro (p. 598) with such a statement that I've ...
1
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1answer
850 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 ...
1
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1answer
337 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 ...
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1answer
47 views

Manufacturing economics book?

I am interested in manufacturing economics - suppose I have to built an engine, I would like to learn a systematic approach to break down what the costs of building an engine would be and how I could ...
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1answer
87 views

Is the following graph possible?

Is the following graph possible? I've attempted to sketch the TC/TR curves for it but they don't seem to be able to satisfy the following two properties at the same time: 1) Slope of Total Cost (TC) ...
1
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1answer
2k views

What is the economic meaning of a differentiated variable cost function [closed]

Given the total cost function $C(Q)=Q^3-5Q^2+12Q+75$, write out a variable cost function. Find the derivative of the variable cost function and interpret the economic meaning of that derivative. Note:...
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0answers
34 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 ...
1
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0answers
31 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 ...
1
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0answers
97 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 ...
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0answers
239 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 ...
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1answer
1k 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 ...
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1answer
3k 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 ...
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0answers
30 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 ...
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0answers
45 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 ...
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0answers
447 views

Short Run vs Long Run Cost Functions

Let $z_a$ and $z_b$ are two vectors of inputs. $z_a$ is variable in both long run and short run however $z_b$ is only variable in long run. Now let's suppose that the price of one of the inputs in ...
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0answers
264 views

Curvature of Cost and Production Function

I have been trying to understand the duality theory between cost and production function. Please let me know if my following statement is correct; If the cost function $C(w,q)$ is convex in $q$, the ...
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0answers
31 views

Total costs as function of labor and quantity [closed]

If I have wage $w = 200$ and rental rate $r = 3050$ on short run, I can assume that $K=1$ and then get the total costs $TC = rK+wL = 3050 + 200L$. Isn't it correct? But what if I also have a cost of ...
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3answers
1k 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.
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2answers
2k views

What is the difference between marginal cost and average cost? [duplicate]

Marginal Cost is $$MC(y) = \frac{\partial C(y)}{ \partial y}$$ Average Cost is $$AC(y) = \frac{ C(y)}{ y}$$ Average Variable Cost is $$AVC(y) = \frac{VC(y)}{ y}$$ Note: Cost is $$ C(y) = FC + VC(...
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2answers
64 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 ...
0
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1answer
41 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 ...