Mattel Toys Inc. is a competitive firm which produces Barbie dolls according to the cost function: C = Q²/20 where Q is the number of dolls produced. The dolls sell for $10 each. After losing a court case, Mattel Toys is ordered to pay a license fee to Toys R Us.
i)If the license fee is $500, regardless of how many dolls Mattel Toys produces, what happens to Mattel's cost function? To the marginal cost function? To the level of output?
ii). If the license fee is $5 per doll, what happens to Mattel's cost function? To the marginal cost function? To the level of output?

Question

Quizplus · Accepted Answer

The Answer of Mattel Toys Inc. is a competitive firm which produces Barbie dolls according to the cost function: C = Q²/20 where Q is the number of dolls produced. The dolls sell for $10 each. After losing a court case, Mattel Toys is ordered to pay a license fee to Toys R Us. i)If the license fee is $500, regardless of how many dolls Mattel Toys produces, what happens to Mattel's cost function? To the marginal cost function? To the level of output? ii). If the license fee is $5 per doll, what happens to Mattel's cost function? To the marginal cost function? To the level of output?