A Coffee Shop's Production Function Is Given by Q =

question 106

Essay

A coffee shop's production function is given by Q = KL, where MP_L = K and MP_K = L. The barista wage rate is $10 and the rental per square foot is $15. In the short run, store size is fixed at 500 square feet. The short-run average total cost of serving 1,500 cups of coffee is _____, and the long-run average total cost of producing 1,500 cups of coffee is _____.

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Definitions:

Marginal Revenue

The additional income received from selling one more unit of a good or service.

Industry Supply Curve

A graphical representation showing the total quantity of a good or service that producers in an industry are willing and able to supply at different price levels.

Marginal Cost Curves

A graphical representation showing how the cost of producing one more unit of a good varies with the quantity of the good produced.

AVC

Average Variable Cost, which is the total variable costs divided by the quantity of output produced.