Question

Consider the following monthly sales data. Corresponding total cost information is also provided.

Quantity (Sales)	Total Cost	Total Revenue	Marginal Cost	Average Cost
0	10,000	0
10	50,000	100,000
20	90,000	190,000
30	120,000	260,000
40	130,000	320,000
50	160,000	370,000
60	200,000	410,000
70	250,000	440,000
80	320,000	460,000
90	400,000	470,000
100	500,000	470,000

(a) What would be the fixed cost?

(b) Fill in the marginal cost column for all the levels of sales (quantity).

(c) Fill in the average cost column for all the levels of output (quantity).

(d) Plot and draw total cost curves (plot them together on the same graph and put Quantity on the x-axis).

(d) Plot and draw marginal cost curve and average cost curve (plot them together on the same graph and put Quantity on the x-axis).

7. You are the CEO of a vacation cruise company that provides cruise service between Seattle WA to Anchorage AK. To provide this service, you use two inputs: ships and attendants. The table below describes the combinations of inputs required to produce cruises service. Assume that a ship costs $1 million dollars and that each attendant costs $1,000. The ship can make multiple cruises (and note that currently your company owns only one ship).

Fill in the remaining columns.

This is per cruise ATC and MC:

Ships	Attendants	Cruises	TC	TFC	TVC	ATC	MC
1	100	1
1	200	2
1	300	3
1	400	4
1	500	5
1	600	6
1	700	7
1	800	8
1	900	9
1	1000	10

Answer 1

a. The minimum cost that the firm has to bear even at zero level of output is the fixed cost. Here, at zero output level , total cost = $10,000. This this actually equal to total fixed cost because here, total marginal cost is zero.

b. In the table given below, we have calculated the marginal cost at each output level.

Formula for marginal cost at output x+10 = (Total cost at output x+10 - Total cost at output x)/(Difference in output level)

For example, Marginal cost at output 20 = (Total cost at output 20 - total cost at output 10) / (20-10) = ($90,000-$50,000)/10 = $40,000/10 = $4,000

Similarly, we calculated for the rest output levels as shown below.

c. In the table given above, we have also calculated the values of average cost for each output level.

Formula used for finding average cost = Total cost/Total quantity

For example, average cost at output 20 = Total cost of output 20/Total Quantity = $90,000/20 = $4500.

Similarly, we have calculated the average cost for all levels of output in the diagram above.

d. In the graph drawn below, taking quantity on x-axis and cost, revenue on the y-axis, we have plotted the total cost and total revenue at each level of output.

e. Now, from the values calculated in the table above, we have plotted the marginal cost and average cost at each level of output. Here, quantity is plotted on the x-axis and marginal cost and average cost are plotted on the y-axis as shown below.