Question

Problem 3

Table 1 below shows an incomplete table of costs for a company.

1. Use the definitions of these costs and how they are related to complete the missing cells of this table. For each cell you fill in, explain how you are able to determine the value of that cost.

Table 1 – Costs

Output (Q)	Fixed Cost (FC)	Variable Cost (VC)	Total Cost (TC)	Average Fixed Cost (AFC)	Average Variable Cost (AVC)	Average Total Cost (ATC)	Marginal Cost (MC)
0			600	N/A	N/A	N/A	N/A
10		300
20					20
30		900
40						75
50							310
60		10,800

2. One a separate piece of paper (either by hand or with Excel) graph the Average Total Cost (ATC) and Marginal Cost (MC) curves for all quantities of output.

Answer 1

Ans:

Output (Q)	Fixed Cost (FC)	Variable Cost (VC)	Total Cost (TC)	Average Fixed Cost ( AFC)	Average Variable Cost ( AVC)	Average Total Cost ( ATC)	Marginal Cost (MC)
0	600	0	600	N/A	N/A	N/A	N/A
10	600	300	900	60	30	90	30
20	600	400	1000	30	20	50	10
30	600	900	1500	20	30	50	50
40	600	2400	3000	15	60	75	150
50	600	5500	6100	12	110	122	310
60	600	10800	11400	10	180	190	530

Explanation:

Fixed cost are available even at zero level of output and remain constant throughout the subsequent level of production.
TC = FC + VC

VC = TC - FC

AFC = FC / Q

AVC = VC / Q

ATC = TC / Q

MC = Change in TC / Change in Q

Ans: The following graph shows the Average Total Cost (ATC) and Marginal Cost (MC) curves for all quantities of output.

Explanation:

Output (Q)	Average Total Cost ( ATC)	Marginal Cost (MC)
0	--	--
10	90	30
20	50	10
30	50	50
40	75	150
50	122	310
60	190	530