Answer to Question #213692 in Microeconomics for Mujahid Hussain

Question

Suppose a company is producing q(1) phones and q(2) computers. The cost function of the company is 1000+70q(1)+80q(2). Assume that the ratio of production quantities q(1) and q(2) is 1:1. (The production ratio is the same for phones and computers.) Derive the Ray Average Cost. What is the average cost if total production (Q) is 100? 

Answer 1

The cost function is ;

1000+70q(1)+80q(2)

The ratio of production of computers and phones is 1:1 meaning a 50- 50 percentage.

If the total quantity is produced = 100

q1 = 50

q2= 50

The total cost is therefore;

1000+70(50)+80(50)= 8500

Average cost = $\frac{8500}{100} = 85$