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Thread: Trick Question? Economics, Marginal Costs and Cost Funtions

  1. #1

    Unhappy Trick Question? Economics, Marginal Costs and Cost Funtions

    Hi! My name is Jaesen. I am new here but had a quick question, as I believe a friend maybe trying to pull a fast one on me.

    The equation he gave me is the following:

    What is the marginal cost of a computer according to the formula C(x) = -4.2X^2+3x+3000, with a cost function K(x) = 0.06x + 500, for a production level of 60 units?

    Supposedly, anyone with Econ101 experience could answer this within 10 seconds, according to my aforementioned "friend". As one who has taken several Econ classes (though this was a considerable while ago) this appears to be a trick question, though if it is not, can anyone find the answer? As I have so far been unable to... Thank you

  2. #2
    Elite Member stapel's Avatar
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    Cool

    Quote Originally Posted by jaewood87 View Post
    The [exercise statement] he gave me is the following:

    What is the marginal cost of a computer according to the formula C(x) = -4.2X^2+3x+3000, with a cost function K(x) = 0.06x + 500, for a production level of 60 units?
    For what does "C" stand? For what does "x" stand?

    Is calculus a prerequisite for this particular economics course?

    Thank you!

  3. #3
    The question is, why do you have 2 functions?

    To get to know what your marginal costs are, you need to differentiate the cost function. Marginal costs are the costs of one additional unit. Normally, a cost function is built of variable costs and fix costs. Fix costs are the costs you have, no matter what amount you produce. So if we take your function:

    K(x) = 0,06x + 500, your fix costs are 500 and variable costs 0,06x. Your MC will be 0,06, constant. The production of one additional unit 'costs' 0,06.

    So if you produce 60 computers, the marginal costs will be K(60)-K(59), or K', which is... 0.06.

    What does the C(X) stand for? It can't be the cost function, or the MC would be negative, which means you gain when you produce... at least I never had an example like this. This is confusing.

    I hope I could help a little.

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