Tony's Pizza's Production Function Is Shown in the Table Above

question 150

Essay

Tony's Pizza's production function is shown in the table above. Tony currently operates Plant 1. He hires workers at a wage rate of $50 a day and his total fixed cost is $100.
a) Calculate Tony's Pizza's total variable cost and total cost for each output level.
b) Calculate Tony's marginal costs.
c) Calculate the average fixed costs, average variable costs, and average total costs.
d) Draw Tony's marginal, average variable, and average total cost curves in one figure. What is the relationship between marginal cost and average cost?

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Definitions:

Monthly Interest Rate

The interest rate applied to a loan or investment, calculated to reflect the monthly compounding period.

Variable Cost

Costs that vary directly with the level of production or sales, such as materials and labor.

Sales Price

The amount of money a buyer pays to purchase a good or service from a seller.

Economic Order Quantity

The ideal order size that minimizes the total costs associated with ordering and holding inventory.