Mr. Otto Carr, owner of Otto’s Autos, sells cars. Otto buys autos for $c each and has no other costs.
(a) What is his total cost if he sells 10 cars? _____. What if he sells 20 cars? ______. Write down the equation for Otto’s total costs assuming he sells y cars: TC(y) = _____.
(b) What is Otto’s average cost function? AC(y) = ______. For every additional auto Otto sells, by how much do his costs increase? _____. Write down Otto’s marginal cost function: MC(y) = ____.
(c) In the graph below draw Otto’s average and marginal cost curves if c = 20.
(d) Suppose Otto has to pay $b a year to produce obnoxious television commercials. Otto’s total cost curve is now TC(y) = _____, his average cost curve is now AC(y) = _____, and his marginal cost curve is MC(y) = ______.
(e) If b = ______, use red ink to draw Otto’s average cost curve on the graph above.