Question

The following information is available for frozen bread producers. Costs are all in AED.

Quantity	Variable Costs	Fixed Costs	Total Costs
0			300,000
10,000	750,000
20,000			1,220,000
30,000			1,700,000

What is total cost when quantity is 10,000?

What is average variable cost when quantity is 30,000

What is average fixed cost when quantity is 10,000?

Explain the relationship between quantity and average fixed cost.

What is the marginal cost when quantity is 20,000 units?

If frozen bakery producers sells frozen bread to UAE dealers for AED70 per unit, what is total profit when quantity is 20,000 units?

Answer 1

Quantity	Variable cost	Fixed Cost	Total Cost
0	0	300,000	300,000
10,000	750,000	300,000	1.050,000
20,000	920,000	300,000	1,220,000
30,000	1,400,000	300,000	1,700,000

With quantity 0, all the amount/will be fixed cost as that amount has to be spent irrespective of production or no production. This is a fixed amount at all levels of production.

Total cost when quantity produced is 10,000=VC+FC

                                                                                = 750,000+300,000=1,050,000

Average variable cost when quantity is 30,000= TVC/Q

                                                                                   = 1,400,000/30,000= 46.66

Average Fixed cost when quantity produced is 10,000= TFC/Q

                                                                                               =300,000/10,000= 30

Fixed cost as mentioned above is the coast that the firm has to spend irrespective of if there is any production or not. When a certain quantity is produced, the price is decided based on the total cost of producing individual product. Fixed cost is constant. For one to be able to find the total cost, one needs to know what share of the total fixed cost is spent on one unit. Thus when pricing a single unit, AFC and AVC are used by the company