Final answer:
The short-run cost function of a company is given by TC=200+55q, with 'TC' representing total cost and 'q' the quantity of output. Fixed costs are represented by '200', while '55q' signifies variable costs. Understanding this helps in calculating the total cost and assessing profitability based on total revenue, which is the product of price and quantity.
Step-by-step explanation:
The question you've asked relates to the short-run cost function of a company, defined by the equation TC=200+55q. Here, TC stands for the total cost, and q represents the total quantity of output. To understand this equation better, let's break it down.
The term '200' represents the fixed costs of production which do not change with the level of output. The '55q' part represents the variable costs that change in proportion to the level of output produced. Thus, as output increases, the total cost will increase due to the variable cost component.
Furthermore, in economics, it's critical to understand that total revenue, which is calculated as Price x Quantity, plays a significant role in determining a firm's profitability.
The firm's goal is to set a price and produce a quantity of goods which will maximize profits.
Total profits are calculated as total revenue minus total costs. In a hypothetical scenario, at a quantity of 40 and a price of $16, if the average cost is $14.50, the firm would be making economic profits because the price per unit is greater than the average cost per unit.
Remember, short-run costs differ from long-run costs because the short run refers to a time period in which certain factors of production are fixed, while in the long run all factors of production can be varied.