Question

Production of desks: from Teak desk producers. Using excel.

Table 1.

Desk per desk	Total costs
0	1000
1	1500
2	1750
3	1850
4	2000
5	2200
6	2500
7	2900
8	3500
9	4200
10	5000

3a. Calculate short-run VC, FC, and MC for teak desk producers
3b. Calculate Atc, avc, and afc.
3c. Price of a desk=400.00 per desk. Calculate profit, calculate the shut-down point. 3d. Graph VC, FC, and MC
3e. Graph A TC, A VC, and AFC

Answer 1

a) Total Cost at desk level of 0 is fixed cost.

Variable cost = Total cost - Fixed cost

Desk	Total Cost	Fixed Cost	Variable Cost
0	1000	1000	0
1	1500	1000	500
2	1750	1000	750
3	1850	1000	850
4	2000	1000	1000
5	2200	1000	1200
6	2500	1000	1500
7	2900	1000	1900
8	3500	1000	2500
9	4200	1000	3200
10	5000	1000	4000

b) Average total cost = Total Cost / Desk

Average variable cost = Variable Cost / Desk

Average Fixed cost = Fixed Cost / Desk

Desk	Total Cost	Fixed Cost	Variable Cost	Average Total Cost	Average Variable Cost	Average Fixed Cost
0	1000	1000	0	-	-	-
1	1500	1000	500	1500.00	500.00	1000.00
2	1750	1000	750	875.00	375.00	500.00
3	1850	1000	850	616.67	283.33	333.33
4	2000	1000	1000	500.00	250.00	250.00
5	2200	1000	1200	440.00	240.00	200.00
6	2500	1000	1500	416.67	250.00	166.67
7	2900	1000	1900	414.29	271.43	142.86
8	3500	1000	2500	437.50	312.50	125.00
9	4200	1000	3200	466.67	355.56	111.11
10	5000	1000	4000	500.00	400.00	100.00

c) Price = 400

Price	Desk	Total Cost	Fixed Cost	Variable Cost	Average Total Cost	Average Variable Cost	Average Fixed Cost	Total Revenue	Profit
400	0	1000	1000	0	-	-	-	0	-1000
400	1	1500	1000	500	1500.00	500.00	1000.00	400	-1100
400	2	1750	1000	750	875.00	375.00	500.00	800	-950
400	3	1850	1000	850	616.67	283.33	333.33	1200	-650
400	4	2000	1000	1000	500.00	250.00	250.00	1600	-400
400	5	2200	1000	1200	440.00	240.00	200.00	2000	-200
400	6	2500	1000	1500	416.67	250.00	166.67	2400	-100
400	7	2900	1000	1900	414.29	271.43	142.86	2800	-100
400	8	3500	1000	2500	437.50	312.50	125.00	3200	-300
400	9	4200	1000	3200	466.67	355.56	111.11	3600	-600
400	10	5000	1000	4000	500.00	400.00	100.00	4000	-1000

Shut down point occurs when Average Variable cost is at its minimum which occurs when Q = 5

d) Marginal cost of current unit = Total cost of current unit - Total cost of previous unit

Desk	Fixed Cost	Variable Cost	Marginal Cost
0	1000	0	-
1	1000	500	500
2	1000	750	250
3	1000	850	100
4	1000	1000	150
5	1000	1200	200
6	1000	1500	300
7	1000	1900	400
8	1000	2500	600
9	1000	3200	700
10	1000	4000	800

e)

Desk	Average Total Cost	Average Variable Cost	Average Fixed Cost
0
1	1500.0	500.0	1000.0
2	875.0	375.0	500.0
3	616.7	283.3	333.3
4	500.0	250.0	250.0
5	440.0	240.0	200.0
6	416.7	250.0	166.7
7	414.3	271.4	142.9
8	437.5	312.5	125.0
9	466.7	355.6	111.1
10	500.0	400.0	100.0