Answer:1) The firm's total cost function is the sum of its fixed costs and its variable costs. In this case, the fixed cost is $5000, which means it remains constant regardless of the number of units produced. The variable cost, also known as the marginal cost of production, is $300 per unit produced. To calculate the total cost function, we multiply the marginal cost by the number of units produced and then add the fixed cost. So the total cost function (TC) can be expressed as: TC = $5000 + ($300 × number of units produced) For example, if the firm produces 10 units, the total cost would be $5000 + ($300 × 10) = $5000 + $3000 = $8000. 2) The firm's average total cost (ATC) of production is the total cost divided by the number of units produced. To calculate the average total cost, we divide the total cost function by the number of units produced. So the average total cost function (ATC) can be expressed as: ATC = TC / number of units produced Using the example above, if the firm produces 10 units, the total cost is $8000. Therefore, the average total cost would be $8000 / 10 = $800. 3) If the firm wants to minimize the average total cost, it would choose to produce a very large number of units. The average total cost decreases as the number of units produced increases. This is because the fixed cost is spread over a larger number of units, reducing the average cost per unit. As a result, producing more units helps to lower the average total cost. By producing a very large number of units, the firm can achieve economies of scale and benefit from lower average costs. However, it is important to note that there is a limit to the benefits of scale. Eventually, the firm may encounter diseconomies of scale, where the average cost starts to increase due to issues such as overcrowding or inefficient operations. So, while it is advantageous to produce a large number of units to minimize average total cost, the firm must also consider the optimal scale of production for long-term profitability.
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