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# \$1.00Managerial Economics

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Q:

1.   a) The total costs (TC) function for a company is: TC = 28,000 + 62Q. Calculate the

following:

(i)  TFC; (ii) TVC; (iii) AFC; (iv) AVC; (v) AC; (vi) MC

2.  The cost function of a manufacturing firm that is producing television sets is

estimated as: TC = 500 + 250Q – 5Q2 +  2Q3

(i)  Derive the MC and AC functions

(ii) What are the total costs and average variable cost at an output of 400 units?

(iii)  What is the output level at which AVC is at a minimum and what is the value?

(iv)  What is the output level at which MC is at a minimum and what is the value?

3. Explain how each of the following events will affect the average and marginal cost

curves of a firm:

a) an increase in labour rate; b) a decrease in lease payments for a facility;

c) stricter environmental regulation requiring installation of scrubbers on smokestacks;

d) an increase in cost of utilities; e) an increase in learning on the part of labour.

4. Three Open Campus students consider the option of forming a lawn care and

landscaping business during their summer vacation. They estimate the following costs:

Insurance \$2,600; Equipment Rental Fees \$1,000; Fuel and Supplies \$4 per lawn

serviced and Miscellaneous expenses \$2 per lawn serviced

The projected revenue depends on the number of lawns serviced. The price per job is

EC\$30. The going wage for a typical unskilled university student is approximately

\$2,400 for the summer months.

a)  Derive an equation for total accounting cost.

b) Derive an equation for total economic profit.

c) Compute the number of lawns that must be serviced during the summer for the

business to breakeven (in the accounting sense).

d) Realistically, the small business should expect to service about 200 lawns during the

summer. Should the three students start the business? Base your answer on rational

economic criteria.

1.   a) The total costs (TC) function for a company is: TC = 28,000 + 62Q. Calculate the

following:

(i)  TFC; (ii) TVC; (iii) AFC; (iv) AVC; (v) AC; (vi) MC

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