The +5 in the total cost function ...

Question

The +5 in this total cost function

TC(A) = A +.2A^2 +5

a) decreased the optimal level of activity

b) increased the optimal level of activity

c) has no effect on the optimal level of activity

Answer 1

It has no effect. Since the 5 isn't tied to quantity, or often written as Q or q, it doesn't change with production. Its what we call a fixed cost and won't change the production decision, or as this question puts it, optimal level of activity. The optimal level of activity, is often called profit maximization, and is found by equating the MC and MR of production.