28. Suppose a farmer is a price taker in soybeans with cost functions given by T

Question

28. Suppose a farmer is a price taker in soybeans with cost functions given by TC = .1q2 + 2q + 100 MC = .2q + 2 Suppose the farmer has to purchase a license for $50, the new marginal cost function is

a. still MC = .2q + 2 c. MC = .2q + 52

b. MC = .2q + 50 d. MC = 50

29. Suppose a farmer is a price taker in soybeans with cost functions given by TC = .1q2 + 2q + 30 MC = .2q + 2 Suppose the farmer has to purchase a license for $50, the new total cost function is

a. still TC = .1q2 + 2 c. TC = .1q2 + 2q + 50

b. TC = .1q2 + .2q + 80 d. TC = 50

30. Suppose a farmer is a price taker in soybeans with cost functions given by TC = .1q2 + 2q + 100 MC = .2q + 2 Suppose the farmer has to pay a 10% tax on revenue. The new profit maximizing level of output is

a. unaffected by the tax. c. decreased because of the tax.

b. increased because of the tax.

Explanation / Answer

28. The right answer is option a. still MC = .2q + 2

Explanation: The license is a one time purchase and it will be considered a part of the fixed cost. So, this will not affect the marginal cost. So, the marginal cost function will still be  MC = .2q + 2.

Alternatively, we can solve this using calculus as well. After the purchase of the license, the total cost = TC = 0.1q2 + 2q + 100 + 50

MC = d/dQ (TC) = d/dQ (0.1q2 + 2q + 100 + 50) = 0.2q + 2

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