Hifi Company Wants to Develop a Cost Function for Its

question 36

Multiple Choice

Hifi Company wants to develop a cost function for its maintenance costs to estimate such costs for the coming year. The following data are available: $$\begin{array} { | l | l | l | } \hline \text { Manth } & \text { Machine Hours } & \begin{array} { l } \text { Maintenance Costs } \\\text { Incurred }\end{array} \\\hline \text { January } & \mathbf { 8 0 0 0 } & \$ \$ , 600 \\\hline \text { February } & 13000 & \$ 5,300 \\\hline \text { March } & 14000 & \$ 6,000 \\\hline \text { April } & 11000 & \$ 4,600 \\\hline\end{array}$$ Using the high-low method, what is the cost function for maintenance costs?

• A) $1,800 + $0.40 per machine hour
• B) $300 + $0.40 per machine hour
• C) $400 + $0.40 per machine hour
• D) $200 + $0.40 per machine hour

Recognize the concept and implications of diminishing returns to labor.

Determine the conditions under which a firm operates at the minimum point of average total cost (ATC).

Understand the concepts of economies and diseconomies of scale and their relationship with the cost curves.

Analyze the effects of spreading and diminishing returns on production costs.

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