Solution to
exercise
We have TP(
z
1
) = 2
z
1
1/4
. How much does it cost to produce
y
units of output? We need
y
= 2
z
1
1/4
,
or
z
1
= (
y
/2)
4
.
So VC(
y
) = 2(
y
/2)
4
=
y
4
/8. So AVC(
y
) =
y
3
/8. And FC(
y
) = (4)(4) = 16, so STC(
y
) =
y
4
/8 + 16. Also AFC(
y
) = 16/
y
, SAC(
y
) =
y
3
/8 + 16/
y
, and SMC(
y
) =
y
3
/2.