Question
In: Economics
The table below shows three possible combinations of fixed cost and average variable cost. Choice Fixed...
The table below shows three possible combinations of fixed
cost and average variable cost.
Choice Fixed Cost Average Variable Cost
1 $8,000 $1.00
2 12,000 0.75
3 24,000 0.25
a. For each of the three choices, calculate the average total
cost of producing 12,000, 22,000 and 30,000 units. For each of
these quantities, which choice results in the lowest average total
cost?
Solutions
Expert Solution
1.
Q=12,000
Fixed cost=8000
Average variable cost=1
Total variable cost=AVC*Q
=12000*1
=12000
TC=TVC+TFC
=12000+8000
=20000
Average total cost=TC/Q
=20000/12000
=1.66
2.
Q=22000
TFC=12,000
AVC=0.75
TVC=0.75*22000
=16,500
TC=TFC+TVC
=12,000+16,500
=28,500
ATC=TC/Q
=28,500/22,000
=1.295
3.
Q=30,000
TFC=24,000
AVC=0.25
TVC=AVC*Q
=0.25*30000
=7500
TC=24000+7500
=31,500
ATC=31,500/30000
=1.05
Third choice leads to lowest average total cost.
It means quantity 30,000 leads to lowest average total cost.
Rahul Sunny answered 2 years agoRelated Solutions
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