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tutorial_8 - ECOS 2001 Tutorial 8 1 Mr Otto Carr owner of...

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ECOS2001 Tutorial 8 1 ECOS 2001 Tutorial 8 1. Mr Otto Carr, owner of Otto’s Autos, sells cars. Otto buys autos for $c each and has no other costs (a) What is his total cost if he sells 10 cars? What if he sells 20 cars? Write down the equation for Otto’s total costs assuming he sells y cars: TC(y). (b) What is Otto’s average cost function? For every additional car Otto sells, by how much do his costs increase? Write down Otto’s marginal cost function: MC(y). (c) Graph Otto’s average and marginal cost curves if c = 20. (d) Suppose Otto has to pay $b a year to produce obnoxious television commercials. Now, what is Otto’s TC(y), AC(y) and MC(y)? (e) If b = $100 graph Otto’s average cost on a graph. 2. Rex Carr owns a junk yard. Rex can use one of two methods to destroy cars. The first involves purchasing a hydraulic car smasher that costs $200 a year to own then spending $1 for every car smashed into oblivion; the second method involves purchasing a shovel that will last one year and costs $10 and paying the a worker to bury cars at a cost of $5 each. (a) Write down the total cost function for the two methods, where y is output per year: TC1(y)
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