Question

“Stand-Up” is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $500 a month and has leased computer equipment that costs $300 a month. Below is the structure of the company’s operational cost.

Output (Instructional Modules per Month)	Fixed Costs	Variable Costs	Total Cost
0	800
1	800	400	1480
2			1930
3		1350	2430
4		1900
5		2500
6			4280
7		4100
8		5400
9		7300
10			10880

1. What is the marginal cost of creating the tenth instructional module in a given month?
2. What is the average variable cost for the month if six instructional modules are
3. What is the average fixed cost for the month if nine instructional modules are produced?

Answer 1

Output	Fixed Cost	Variable Cost	Total Cost	Marginal Cost
0	800	0	800	--
1	800	400	1480	680
2	800	1130	1930	450
3	800	1350	2430	500
4	800	1900	2700	270
5	800	2500	3300	600
6	800	3480	4280	980
7	800	4100	4900	620
8	800	5400	6200	1300
9	800	7300	8100	1900
10	800	10080	10880	2780

Fixed cost will remain same at every output hence fixed cost will be equal to 800 at every output.

Variable Cost = Total Cost - Fixed Cost

Total Cost = Fixed Cost + Variable Cost

Marginal Cost = Change in Total Cost / Change in Output

A) The marginal cost of creating the tenth instructional module in a given month will be

Marginal Cost = Change in Total Cost / Change in Output

Marginal Cost = 10880 - 8100 / 10 - 9

Marginal Cost = 2780 / 1

Marginal Cost = 2780

B) The average variable cost for the month if six instructional modules are

Average Variable Cost = Variable cost / Output

Average Variable Cost = 3480 / 6

Average Variable Cost = 580

C) The average fixed cost for the month if nine instructional modules are produced

Average Fixed Cost = Fixed cost / Output

Average Fixed Cost = 800 / 9

Average Fixed Cost = 88.88