Dan\'s pizza company has a total variable cost function: TVC = 5Q + (Q^2/80) MC = 5 + Q/40 Find the efficient scale of production and minimum AVC when avaoidable fixed cost is $845 per day. Solution Efficient scale of production is where MC meets AC TC= TVC + FC TC= 5Q+Q2 / 80 +845 AC = 5+Q/80 MC = 5+Q/40 AC= MC 5+Q/80 = 5 +Q/40 Q/2 = 0 Q=0 Minimum AVC TVC = 5Q+Q2/80 AVC = 5+Q/80 Q=0 = minimum There is no output where we will find AC minimum. We can see from the equation for all positive Q, the cost increases with increase in output..

1. Dan's pizza company has a total variable cost function:
TVC = 5Q + (Q^2/80)
MC = 5 + Q/40
Find the efficient scale of production and minimum AVC when avaoidable fixed cost is $845 per
day.
Solution
Efficient scale of production is where MC meets AC
TC= TVC + FC
TC= 5Q+Q2 / 80 +845
AC = 5+Q/80
MC = 5+Q/40
AC= MC
5+Q/80 = 5 +Q/40
Q/2 = 0
Q=0
Minimum AVC
TVC = 5Q+Q2/80
AVC = 5+Q/80
Q=0 = minimum
There is no output where we will find AC minimum. We can see from the equation for all
positive Q, the cost increases with increase in output.