Question

Question 4: Louis’ boss, Claude, faces more than just food costs. For example, Louis is a cost to Claude! In addition, Claude pays for garbage collection, rent, insurance, utilities, occasional employee theft (someone other than Louis because Canadians are honest), an accountant, and political donations (to stop rival poutineries from opening). As a result, Claude’s cost function is given by C(q) =3q+4q2+64.

(a) What are Claude’s variable costs? What are his fixed costs?

(b) What is Claude’s marginal cost of producing poutine,MC(q)?

(c) What is Claude’s average cost of producing poutine,AC(q)?

(d) Does Claude’s cost function exhibit economies of scale? If so, at what level of output do they end? If not, show why.

Answer 1