Suppose a firm's total cost and marginal cost functions are given by TC = 18 + Q + 2Q² and MC = 1 + 4Q, respectively. What is the output level that minimizes average total cost? A) 5 B) 3 C) 4.45 D) 6

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Quizplus · Accepted Answer

To minimize average total cost (ATC), set the derivative of ATC with respect to Q to zero. ATC = TC/Q = (18 + Q + 2Q^2)/Q = 18/Q + 1 + 2Q. The derivative of ATC with respect to Q is -18/Q^2 + 2. Setting this equal to zero gives Q = 3.

Suppose a Firm's Total Cost and Marginal Cost Functions Are