# Tag Info

## Hot answers tagged cost

10

It is the first one, $TC(0) = FC$. This is the definition. Also consider that it is not clear what is "transformed by $q$ in some way". In case of $$\frac{5q}{q+1} + \frac{5}{q+1}$$ are the two fractions transformed by $q$, or should I just sum them up to 5? With your function, one can rearrange it to  TC(q) = \frac{5}{q+1} + 5 + 5q + q^2 = -\frac{5q}{...

3

The marginal cost is 3. Marginal costs do not depend on the fixed cost, and when your variable costs are constant, then the marginal cost and the variable cost are the same. Note that your total cost is $C=FC+3q$ and the marginal cost is always the derivative of your total cost, in this case, $3$. As for the fixed costs, 4000 is definitely part of it, but ...

3

No, a shift in the average total cost curve does not necessarily mean that the marginal cost curve will also shift up. Your intuition is correct. Here is a simple numerical example: Consider a shift from the total cost function $C_1(q)=q$ to $C_2(q)=1+q$. Then the average cost functions shifts upward from $AC_1(q)=1$ to $AC_2(q)=1/q+1$. But the marginal ...

3

Don't get stuck with math. Look again at the production function. Perhaps draw out isoquant curves (for the same output, how could you vary $K$ and $L$). How are the isoquants for this production function different from those of standard Cobb-Douglas production function? Hint: perfect substitute.

2

You should quote directly from the book you're citing, because I think you might be mis-reading it. At the Econ101 level, there are two important frames for thinking about fixed costs: one is that in the long run, the contribution of fixed costs to average cost falls to zero. You can see this in the standard textbook graph, which will typically look ...

2

The paper "The impact of scale on energy intensity in freight transportation" by Gucwa and Schaefer has some of the information you need. Figure 5 from that paper is presented below: The site ShipMap.Org has a data visualisation of shipping routes, where you can filter by type of freight. (Disclosure: these are all colleagues of mine except Gucwa)

1

The marginal cost is the cost added of producing an additional unit of product. In this case the company is paying a factory in China \$3 per unit to produce the product. Assuming you have no other variable costs (i.e. costs that vary with level of output) then the cost of producing an additional unit is indeed$3.

1

Your question is ultimately one about information flow in networks under conditions of imperfect and incomplete information. I like your distinction between "easy" and "hard" to calculate - it's a good rubric for problem classification. I believe that work being done on complexity theory and information flows can help shed some light on how to think about ...

1

The idea that the long run average cost curve (LRAC) must pass through the minimum points of the short run average cost curves (SRAC) is a fallacy, but it seems to be a remarkably plausible one. It was the source of a famous error by the economist Jacob Viner, referred to in this paper by Silberberg. Underlying the fallacy is perhaps an assumption that the ...

1

Adam Bailey is correct. Consider the production function $f(x_1,x_2) = x_1 + x_2/2$ where $(x_1,x_2)$ are inputs. If the input costs are $w_1=w_2=1$ and all inputs are freely chosen, the solution to the cost minimization problem is \begin{align*} x_1 & = y \\ \\ x_2 & = 0. \end{align*} However, in the short run one or more of the input quantities ...

1

Looking at the context of the link posted, seems like you have the correct idea and the answerer might have misspoken. The minimum of SR cost curve should be on the LR cost curve. Suppose (for contradiction) that SR cost curve is above the LR cost curve at point $x$ on LR cost curve. This point $x$ involves a set of fixed variable (which is adjustable in the ...

1

Firstly, in your example the value of $r$ (as used by economists in this context) would be $1.03$, not $0.03$. Economists call this the "interest rate", but you might prefer to think of it as the "rate of return on capital". Secondly, what we define as constituting one unit of capital is pretty arbitrary. Is a computer one unit of capital or ten units of ...

1

You're missing the distinction between costs and benefits. In your first probem you have positive NPVs and therefore the equivalent annual value is the equivalent annual cashflows that comes in. In your second problem you have costs only. Converting that that to an EAV means converting it to an annual cash flow that goes out. Obviously you want the former ...

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