Answer to Question #162300 in Macroeconomics for Godfrey Opanga

Question

The cost function is given by÷

C(y)=120y-y^2+0.02^3.

Obtain the following :

1.The average variable cost

2.The marginal cost

Answer 1

(a) The average variable cost can be found as follows:

$$C(y)_{avg}=\dfrac{C(y)}{y}=\dfrac{120y-y^2+0.02^3}{y},$$ $$C(y)_{avg}=120-y+\dfrac{0.02^3}{y}.$$

(b)

$$MC=\dfrac{d}{dy}(C(y)),$$ $$MC=\dfrac{d}{dy}(120y-y^2+0.02^3)=120-2y.$$