Question

In: Economics

A firm faces the following costs: total cost of capital = $2,000; price paid for labor...

A firm faces the following costs: total cost of capital = $2,000; price paid for labor = $12 per labor unit; and price paid for raw materials = $4 per raw-material unit.

Instructions: In parts a and b, round your answers to 2 decimal places. In part c, enter your answer as a whole number.

a. Suppose the firm can produce 6,000 units of output this year by combining its fixed capital with 100 units of labor and 450 units of raw materials. What are the total cost and average total cost of producing the 6,000 units of output?

TC=

ATC=

b. Now assume the firm improves its production process so that it can produce 7,000 units of output this year by combining its fixed capital with 100 units of labor and 450 units of raw materials. What are the total cost and average total cost of producing the 7,000 units of output?

TC=

ATC=

c. If units of output can always be sold for $1 each, then by how much does the firm’s profit increase after it improves its production process?

Solutions

Expert Solution

Given, the cost of production: total cost of capital and per unit costs of labor and raw materials. Please refer to the images below for the complete mathematical solution:

Rahul Sunny answered 3 days ago
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