Holdingzthe plant size constant at 100000 find out avc and

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Reference no: EM13396682

1. A study of the costs of electricity generation for a sample of 112 British firms in 1946 - 1947 yielded the following long-run average variable cost and marginal cost functions: (3 points)

AVC = 2.48 + .0066Q + .0000058Q² -.000092QZ -.052Z + .00036Z²

MC= 2.48 + .0132Q + .0000174Q² - .000184QZ -.052Z + .00036Z²

Where:

AVC = average variable cost measured in pence per kilowatt-hour (kWh). (A pence was a British monetary unit equal, at that time to 2 cents U.S.).

MC =marginal cost measured in pence per kilowatt-hour (kWh).

Q = output measured in millions of kWh per year.

Z=plant size measured in thousands of kilowatts.

a) Determine the long run variable cost function for electricity generation. (Hint VC = AVC*Q)

b) HoldingZ(the plant size) constant at 100,000, determine the AVC and MC functions for electricity. (Hint: substitute 100,000 for Z in both equations.)

c) Holding Z constant at 100,000 kilowatts, determine the output level that minimizes AVC. (Hint: Set AVC = MC and solve for Q or set dAVC/dQ = 0 and solve for Q. Both will generate the same value of Q.)

Reference no: EM13396682

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