Mid Term Exam (PART B)

9th December,2020

Dr. Khadija Bari

Managerial Economics

Q1. The Big Horn Corporation commissioned an Economic consultant to estimate the company’s cost
Function. The consultant collected a large amount of data for a number of years from the books of the
corporation and came up with the following equation:

TC = (Last three digits of your ERP) + 22Q +1.5Q 2

For e.g. if your ERP is 21514 then your equation is :

TC = 514 + 22Q +1.5Q2

Where, TC= Total cost (in thousands)

Q= Quantity produced per period

a. Plot this curve for quantities 1 through 15

b. Calculate the average total cost, average variable cost, and marginal cost, and plot them on
another graph
c. Discuss your results in terms of decreasing, constant, increasing marginal costs. Does Big Horn’s
cost function illustrate all these?