Consider the cubic total cost function TC = a + bQ + cQ² + dQ³,where a = 0,b = 25,c = -10,and d = 1.The firm's minimum efficient scale would be an output of _____ units. A)ten B)five C)one D)two

Question

Quizplus · Accepted Answer

To find the minimum efficient scale, we need to find the output level at which average cost is minimized. The average cost function is obtained by dividing the total cost function by the output level (Q). Thus, AC = (a/Q) + b + c²/Q + d³/Q Taking the derivative with respect to Q and setting it equal to zero, we get -d³/Q2 - c²/Q2 + a/Q2 = 0 Solving for Q, we get Q = (a/(cd))1/3 = 5. Thus, the minimum efficient scale is 5 units. The correct answer is (B).

Consider the Cubic Total Cost Function TC = a