Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 8, Problem 1.2P
To determine
The average fixed cost and
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Economist T. Yntema estimated the short-run total cost function of the United States
Steel Corporation in the 1930s to be as follows:
C=182.1+55.73Q
where C is total annual cost (in millions of dollars) and Q is millions of tons of steel
produced.
a.
b.
C.
d.
What was U.S. Steel's fixed costs?
If U.S. Steel produced 10 million tons of steel, what was its average
variable costs?
What was U.S. Steel's marginal costs?
If there were diminishing marginal returns to the variable inputs in the
production of steel, do you think that this equation provided a faithful
representation of U.S. Steel's short-run total cost function? Briefly explain.
In 1796, Gottfried Christoph Hartel, a German music publisher, calculated the cost of printing
music using an engraved plate technology and used these estimated cost functions to make
production decisions. Hartel figured that the fixed cost of printing a musical page-the cost of
engraving the plates-was 900 pfennigs. The marginal cost of each additional copy of the page
was 5 pfennigs (Scherer, 2001).
Graph the average total cost, average variable cost, and marginal cost functions.
1.) Using the three-point curved line drawing tool, plot the average cost curve. Let the three
points correspond to quantities of 20, 60, and 180 units of output. Label this curve 'AC.'
2.) Using the line drawing tool, draw the marginal cost curve. Label this curve 'MC.'
3.) Using the line drawing tool, plot the average variable cost curve. Label this curve 'AVC.'
Carefully follow the instructions above, and only draw the required objects.
CH
pfennigs, cost per page
50-
45-
40-
35-
30-
25-
20-
15-
10-
01
5-…
Use the following data for answering Questions 3-6:
The Haverford Company is considering three types of plants to make a particular electronic device. Plant A is much more highly automated than plant B, which in turn is more highly
automated than plant C. For each type of plant, average variable cost
each type of plant is as follows:
constant so long as output is less than capacity, which is the maximum output of the plant. The cost structure for
Plant C
Plant A
Plant B
Average Variable Costs
$1.10
$2.40
$3.70
Labor
0.90
Materials
1.20
1.80
Other
0.50
2.40
2.00
$2.50
$6.00
$7.50
Total
$300,000
$75,000
$25,000
Total fixed costs
Annual capacity
$50,000
200,000
100,000
Derive the average costs of producing 100,000, 200,000, 300,000, and 400,000 devices per year with Plant C. (NOTE: for output exceeding the capacity of a single plant, assume that more
than one plant of this type is built, i.e., all inputs are duplicated in each additional plant. What are the average costs per unit for the…
Chapter 8 Solutions
Principles of Economics (12th Edition)
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