A study of the costs of electricity generation for a sample


A study of the costs of electricity generation for a sample of 56 British firms in 1946-1947 yielded the following long-run cost function:

+ .0033Q + .0000029Q^2 – .000046QZ – .026Z + .00018Z^2

where variable cost measured in pence per kilowatt-hour. (A pence was a British monetary unit equal, at that time to 2 cents U.S.)

Q = output; measured in millions of kWh per year

Z = plant size, measured in thousands of kilowatts

A. Determine the long-run average variable cost function for electricity generation.

B. Determine the long-run marginal cost function for electricity generation.

C. Holding plant size constant at 150,000 kilowatts, determine the short-run average variable cost and marginal cost functions for electricity generation.

D. For a plant size equal to 150,000 kilowatts, determine the output level that minimizes short-run average variable costs.

E. Determine the short-run average variable cost and marginal cost at the output level obtained in Part (D).

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Business Economics: A study of the costs of electricity generation for a sample
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