A Study Of The Costs Of Electricity Generation For A Sample Of 56 British Firms

A study of the costs of electricity generation for a sample of 56 British firms in1946–1947 yielded the following long-run cost function:AVC = 1.24 + .0033Q + .0000029Q2 − .000046QZ − .026Z + .00018Z2where AVC = average variable cost (i.e., working costs of generation), measured in pence per kilowatt-hour (kWh). (A pence was a British monetary unit equal, at that time, to 2 cents U.S.)Q = output; measured in millions of kWh per yearZ = plant size; measured in thousands of kilowattsa. Determine the long-run 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-runaverage variable cost and marginal cost functions for electricity generation.d. For a plant size equal to 150,000 kilowatts, determine the output level thatminimizes 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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