For each of the following cost functions, if possible, find ...

[jhjkgdfhk]

For each of the following cost functions, if possible, find minimum AC and minimum AVC.
 
  a. TC = 40,000 + 20 Q
  b. TC = 1000 + 2Q + 0.1 Q2

Question 2

To reduce moral hazard, a firm may
 
  A) pay workers at a piece rate.
  B) offer a year-end bonus if firm profits are up.
  C) offer stock options.
  D) All of the above.

[14vl19]

Answer to Question 1

a. Set MC = AC.
20 = (40,000/Q) + 20
In this case, AC is decreasing everywhere, and thus there is no minimum average cost (although it will approach 20).
Set MC = AVC.
20 = 20
Q = 0, and at that point, AVC = 20.
b. Set MC = AC.
2 + 0.2Q = (1000/Q) + 2 + 0.1Q
Q = 100, and at that point, AC = 22.
Set MC = AVC.
2 + 0.2Q = 2 + 0.1Q
Q = 0, and at that point, AVC = 2.

Answer to Question 2

D

[jhjkgdfhk]

Excellent

[coreycathey]

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