Question

Calculate average total cost, what is the most efficient (minimum ATC) output quantity given the costs below? What should be the cost to produce 900 units?

Average Total Average

Variable Step Fixed Total

   Output Cost Cost Cost Cost

      0 $ 0 $50,000 $500,000      _________

150 1,000       100,000 500,000 _________

300 950 100,000 500,000 _________

450 1,000       100,000 500,000 _________

600 1,200       200,000 500,000 _________

750 1,500       200,000 500,000 _________

900 1,800 300,000 500,000 _________

Answer 1

Solution:

Output	Average Variable Cost	Variable Cost (Average Variable cost * Output)	Step Cost	Fixed Cost	Total Cost (Variable Cost + Step Cost + Fixed Cost)	Average Total Cost (Total Cost / Output)
0	$0.00	$0.00	$50,000.00	$500,000.00	$550,000.00	Infinity
150	$1,000.00	$150,000.00	$100,000.00	$500,000.00	$750,000.00	$5,000.00
300	$950.00	$285,000.00	$100,000.00	$500,000.00	$885,000.00	$2,950.00
450	$1,000.00	$450,000.00	$100,000.00	$500,000.00	$1,050,000.00	$2,333.33
600	$1,200.00	$720,000.00	$200,000.00	$500,000.00	$1,420,000.00	$2,366.67
750	$1,500.00	$1,125,000.00	$200,000.00	$500,000.00	$1,825,000.00	$2,433.33
900	$1,800.00	$1,620,000.00	$300,000.00	$500,000.00	$2,420,000.00	$2,688.89

The most efficent minimum ATC is $2,333.33 at output level of 450.

Total cost to produce 900 units = $2,420,000