Case 4.1: Cost Functions

The Acme Corporation has estimated its total cost function in an Excel spreadsheet and has come up with the following graph and equation:

1.Use the corresponding spreadsheet to make a graph showing total cost (as above), as well as total fixed cost and total variable cost.[Tip: this can be easily done in Excel by inserting a scatterplot (go to the Insert tab, find scatterplot in the "Charts" section) and choose one of the options that will plot the curves for you.]I've started the spreadsheet; you'll need to put in columns for TFC and TVC.

2.On the spreadsheet, in row 2, fill in the highlighted cell with the formula for average total cost.Then create columns for average fixed cost, average variable cost, average total cost, and marginal cost.Graph these with dollars on the vertical axis and quantity on the horizontal axis.[I strongly recommend not graphing the values for Q < 100, as the very high numbers for average total cost will make the rest of the chart look flat.Also: don't put the average and marginal values on the same graph with the totals from question 1, because the scales are so different.]

3.Does this look more like a set of short run or long run cost functions?

4.At what quantity does it appear that the law of diminishing marginal product sets in on the production function?