# ECO 550 week 3 Problem Set

From the information in the table, calculate total fixed costs (TFC), total variable costs (TVC), total cost (TC), average fixed costs (AFC), average variable costs (AVC), average total cost (ATC), and marginal cost (MC).

b.      For what range of output does this function have diminishing marginal returns?

The range of output that has diminishing marginal returns is output of 15 to 85.

c.       At what output is average product maximized?

When TP=75 and L=5 average output =15 which is the maximum of overall average product output.

d.      At which level of production is average total cost minimized? At which level of production is average variable cost minimized?

Average total cost is minimized at labor of 7 and TP=90. Average variable cost is minimized at a labor=5 and TP=75.

2.      Jim is considering quitting his job and using his savings to start a small business. He expects that his costs will consist of a lease on the building, inventory, wages for two workers, electricity, and insurance.

a.        Indentify which costs are explicit and which are opportunity [implicit] costs.

Explicit cost: Wages, Insurance, electricity, lease on the building. There is no implicit cost listed.

b.       Identify which costs are fixed and which are variable.

Fixed cost: lease on building, Wages, insurance

Variable cost: Electricity, inventory