Question

Question 1:   

Consider the following Table: (1x5=5)

Output	VC	FC	TC
0	O	10	10
1	10		20
2	17		27
3	25		35
4	40		50
5	60		70
6	110		120

With the help of the above Table, calculate the following:

ATC of 5 units  ______________________________________________

AFC of 2 units _______________________________________________

AVC of 6 units _______________________________________________

MC of 2 units ________________________________________________

AFC of 1 unit ________________________________________________

What would happen to the demand for "Minarda" in the following situations? Will the demand curve shift to the left, shift to the right or stay unchanged?

Dew's price reduces by 10%. ( ________________________________________)

Shani and Coca-Cola raise their prices by 25%. ( _____________________________)

7'Up'sprice declines by 20%. ( _____________________)

XYZ Company has terminated 300employees. ( ________________________________________)

Sprite reduces its price by 20%. ( __________________________________________)

Answer 1

At all units of output, Fixed Cost will remain same which is equal to 10

1.ATC of 5 units

Total Cost of 5 units = Total Fixed Cost + Total Variable Cost

= 10 + 60 = 70

Average Total Cost = Total Cost / Number of Units

ATC of 5 units = 70 / 5 = 14

b) AFC of 2 units

Average Fixed Cost = Total Fixed Cost / No. of units

= 10 / 2 = 5

c) AVC of 6 units

Average Variable Cost = Total Variable Cost / No. of units

= 110 / 6 = 18.34

d) MC of 2 units

Marginal Cost is change in Total Cost with each additional unit of output

Total Cost at 1 unit of Output = Total Fixed Cost + Total Marginal Cost

= 10 + 10 = 20

Total Cost of 2 units = 17 + 10 = 27

MC of 2 units = 27 - 20 = 7

e) AFC of 1 unit

Average Fixed Cost = Total Fixed Cost / Number of Units

= 10 / 1 = 10