# Min average cost

• April 24th 2012, 12:52 PM
monicajoyce09
Min average cost
The cost function for a company is C(x)=2000+96x+4x3/2 where x represents thousands of units. Is there a production level that minimizes average cost?
• April 24th 2012, 12:59 PM
ignite
Re: Min average cost
Average cost is defined by $AC(x)=\frac{C(x)}{x}$.
In order to minimise $AC(x)$ , find $x_0$ such that $AC'(x_0)=0$ and $AC''(x_0)>0$

You will find that $x_0=100$ satisfies these conditions.
• April 24th 2012, 01:02 PM
monicajoyce09
Re: Min average cost
I'm not sure I understand how to do that. I know its a simple problem I'm just lost.
• April 24th 2012, 01:12 PM
ignite
Re: Min average cost
$AC(x)=\frac{2000}{x}+96+4x^\frac{1}{2}$
Differentiating wrt x,
$AC'(x)=\frac{-2000}{x^2}+2x^\frac{-1}{2}$
$AC'(x)=0 \Rightarrow 2x^\frac{-1}{2}=\frac{2000}{x^2} \Rightarrow x_0=100$
Similarly find $AC''(x)$ and show that it's value at $x_0=100$ is greater than 0.

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