Question

4. Various measures of cost

Douglas Fur is a small manufacturer of fake-fur boots in Chicago. The following table shows the company’s total cost of production at various production quantities.

Fill in the remaining cells of the following table.

Quantity	Total Cost	Marginal Cost	Fixed Cost	Variable Cost	Average Variable Cost	Average Total Cost
(Pairs)	(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars per pair)	(Dollars per pair)
0	60				—	—
1	155
2	220
3	255
4	300
5	350
6	450

On the following graph, plot Douglas Fur’s average total cost (ATC) curve using the green points (triangle symbol). Next, plot its average variable cost (AVC) curve using the purple points (diamond symbol). Finally, plot its marginal cost (MC) curve using the orange points (square symbol). (Hint: For ATC and AVC, plot the points on the integer; for example, the ATC of producing one pair of boots is $155, so you should start your ATC curve by placing a green point at (1, 155). For MC, plot the points between the integers: For example, the MC of increasing production from zero to one pair of boots is $95, so you should start your MC curve by placing an orange square at (0.5, 95).)

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

ATCAVCMC01234562001751501251007550250COSTS (Dollars per pair)QUANTITY (Pairs of boots)

Answer 1

The following formula has been used to fill the table -

Marginal cost= change in total cost/change in quantity

Fixed cost is the total cost when quantity produced is 0. Fixed cost is same at all levels of output in the short run. Thus fixed cost equal to 60 at all levels.

Variable cost= Total cost - fixed cost

Average variable cost= variable cost/Quantity

Average total cost= total cost/quantity

The completed table is as above.

ATC, AVC and MC will be plotted as below-