Economics and Statistics

Assume that you are the owner of a small business that produces T-shirts. Your the total revenue for your business can be modeled by the following equation: and your total cost corresponds to this function: Find the point at which your firm maximizes its profit. Then, find how much profit the firm if able to earn at that point. Using the total cost and total revenue functions we can set up the profit function: Then, realize that if you want to find the maximum profit, take the derivative of the function and set it up equal to zero, and solve for Q. This is equivalent of taking the derivative of the total cost and total revenue functions and setting them equal to each other. In this problem, I chose the latter option as it was explained in the previous lessons. Notice that profit is often denoted by a capital pi.  We are assuming that the TR>TC for some positive value, you can check for yourself. However, if we did not know that, we would first take the first ...

We have so far talked about the short run cost for firms. It is now time to do some problems to make sure that the reader gets conformable with these types of problems. Exercise 1 requires the use of a cost data table, and exercise 2 requires knowledge in Calculus. 1). A firm has the following cost data: Ouput (Q)  Total Cost (TC)   Variable Cost (VC)  523 $6500 $2500  524 $6725 $2725  525 $7025 $3025 Find the ATC, AFC, AVC, and MC at these output levels. Remember the total cost formula: Then, in order to find FC just do the following: Finally all you need to do is to divide each of these terms by  each output level to find the ATC, AFC, and AVC.  Regarding the MC, remember the formula: Then, Solution to problem 1: ATC  AFC  AVC  MC $(6500/523) $(4000/523) $(2500/523) n.a $(6725/524) $(4000/524) $(2725/52...

In Economics, the term short run refers to a time period where at least one variable of interest does not change . In our case, the short run for a firm is when at least one input  (labor, land, capital) stays fixed. Usually land and capital are considered fixed in the short run.  If an input is fixed during a period time, no matter how much the total product a firm produces, its cost stays the same. This cost is commonly known as fixed cost (FC). Examples of fixed costs: rent, property taxes, loan payments. Labor is often considered to be a part of the  variable cost (VC) . Variable cost can be defined as the cost a firm has control over during the short run. Unlike fixed cost, variable cost increases (decreases) as a firm's total product increases (decreases). Examples of variable costs include: utility bills, wages, raw materials A firm's total cost (TC) is the sum of its variable and fixed costs. As you can see, the fixed cost...