ts 8. A firm has long run total cost function TC(R)-10000-300+0, where @is outpu
ID: 1152420 • Letter: T
Question
ts 8. A firm has long run total cost function TC(R)-10000-300+0, where @is output produced a. Derive the expression for the firm's average cost function. Derive the expression for the firm's long run marginal cost function At what level of output produced does the firm achieve minimum efficient scale What does average cost equal at this production level? c. d. Over what range of output does the firm experience economies of scale in production? Explain. Over what range of output does the firm experience diseconomies of scale in production? Explain.Explanation / Answer
Long run cost function is TC = 1000Q - 30Q^2 + Q^3
a) Average cost = TC/Q = 1000 - 30Q + Q^2
b) MC = dTC/dQ = 1000 - 60Q + 3Q^2
c) MES is achieved when AC is minimum and is equal to MC
ATC = MC
1000 - 30Q + Q^2 = 1000 - 60Q + 3Q^2
-30Q + 60Q + Q^2 - 3Q^2 = 0
30Q - 2Q^2 = 0
Q = 15
When Q = 15, firm achieves minimum efficient scale
d) From 0 to 15 there are economies of scale and from 15 and beyond there are diseconomies. This comes from
the fact that to the left of MES are economies and to its right are diseconomies
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