Question

​Intel's average cost in a given year falls with the quantity that it produces. In​ addition, extra production this year lowers the average cost curve next year. For​ example, in year​ 1,

AC=42

if quantity is 20 and

AC=30

if quantity is 60. If Intel produces 20 in year 1 and 40 in year​ 2, the average cost in year 2 will be

30.

​However, for every extra 10 units it produces in year​ 1, its AC for any given quantity in year 2 falls by

5​%.

What is the total cost and the average cost over the two years combined if the firm produces 20 in year 1 and 40 in year​ 2?

The total cost​ (C) is

C=​$20402040.

​(Enter your response rounded to two decimal​ places.)

The average cost​ (AC) is

AC=​$3434.

​(Enter your response rounded to two decimal​ places.)

What is the total cost and average cost over the two years combined if the firm produces 60 in year 1 and 40 in year​ 2?

The total cost​ (C) is

C=​$nothing.

​(Enter your response rounded to two decimal​ places.)

The average cost​ (AC) is

AC=​$nothing.

​(Enter your response rounded to two decimal​ places.)

Over the two years​ combined, what is the true additional cost of producing 60 instead of 20 in year​ 1?

The marginal cost of producing 60 units in year 1 instead of 20 is

Answer 1

Given Data:

Year 1:

If Quantity = 20, then AC = 42

If Quantity = 60, then AC = 30

Year 2:

If Quantity = 40, then AC = 30

Ans 1) Quantity produced:

Year 1 = 20 & Year 2 = 40

Hence, AC for year 1 = 42 & AC for year 2 = 30

Total Cost = Quantity x AC

TC for year 1 = 42 x 20 = 840

TC for year 2 = 30 x 40 = 1,200

So, Combined TC = 2,040 (Answer for part A)

Combined AC = TC / Total Quantity = 2,040 / 60 = 34(Answer for part B)

Ans 2) Quantity Produced:

Year 1 = 60 & Year 2 = 40

Hence, AC for year 1 = 30 & AC for year 2 = 30

Total Cost = Quantity x AC

TC for year 1 = 30x 60 = 1800

TC for year 2 = 30 x 40 = 1,200

So, Combined TC = 3,000 (Answer for part A)

Combined AC = TC / Total Quantity = 3,000 / 100 = 30 (Answer for part B)

Ans 3) The marginal cost of producing 60 units in year 1 instead of 20:

TC for producing 20 units = 42 x 20 = 840

TC for producing 60 units = 30 x 60 = 1800

Hence, Marginal Cost of producing 60 units in year 1 instead of 20 = 1800 - 840 = 960

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