Question

Q12.   Using the data in the table below, plot the total fixed costs (TFC), total variable costs (TVC) and total cost (TC) schedules.
Quantity   TFC($) TVC($)    TC($)
   0 120    0    120
   1    120 60 18

   2    120 80 200
   3    120    90 210
   4    120 105    225
   5    120 140    260
   6    120 210 330

a.   Given the table in Q12, determine the schedules for average fixed costs (AFC), average variable costs (AVC), and average costs (AC).
b.   Plot the AFC, AVC, and AC schedules on a new graph.
c.   Why does the AFC curve fall continuously?
d.   What is the relationship between AFC, AC and AVC?
e.   Determine the marginal cost (MC) schedule.
f.   Plot the MC on the same graph as the AFC, AVC, and AC curves
g.   Does the MC curve intersect any of the other curves in this figure? If so which curves? Does the intersection occur at a particular point? If so, what point?

Answer 1

output	total fixed cost,TFC	total variable cost,TVC	total cost,TC	average fixed cost,AFC	average variable cost,AVC	average cost,AC	marginal cost,MC
0	120	0	120	-	-	-	-
1	120	60	180	120	60	180	60
2	120	80	200	60	40	100	20
3	120	90	210	40	30	70	10
4	120	105	225	30	26.25	56.25	15
5	120	140	260	24	28	52	35
6	120	210	330	20	35	55	70

The average fixed costs AFC curve is downward sloping because fixed costs are distributed over a larger volume when the quantity produced increases. AFC is equal to the vertical difference between ATC and AVC. The AFC curve is asymptotic to to both the x and y axis as the fixed cost can never be 0 since fixed cost is positive.

MC curve intersects AC & AVC curve

. There are economies of scale as long as it costs less at the margin to produce than on average (MC<AVC). The MC curve cuts the AVC and ATC curves at their minimum. At output levels when MC>AVC, the production of an additional unit raises average variable costs.

AVC is at its minimum between output levels 4 & 5 units

AC is at its minimum between output levels 5 & 6 units