Question
Juju estimates that it operates with the following annual total cost function: TC = 16Q 2Q 2 + 0.12Q 3 In this equation, TC is
Juju estimates that it operates with the following annual total cost function:
TC = 16Q 2Q2 + 0.12Q3
In this equation, TC is total cost in TL and Q is the number of detox packages in thousands.
a. (10 points) On January 1, 2020, Juju estimated that it will produce and sell 16,000 detox packages during 2020. Calculate Jujus TOTAL COST and AVERAGE TOTAL COST for 2020. Show your calculations.
b. (30 points) Preparing fresh cold-pressed juices for each order is a highly labor-intensive process. Jujus team of young employees gets more experienced every year and Juju expects that its average cost of producing the detox packages is going to decline.
On December 31, 2020, Juju examined its production numbers and saw that its actual average total costs turned out to be TL22 per unit at an actual production volume of 20,000 detox packages. In light of this information, calculate the separate influences of (1) ECONOMIES OF SCALE, and (2) LEARNING on average total cost for 2020. Show your calculations.
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