Question

The table below shows the short run cost for producing bicycles.

Complete all missing values in table below:

 

Marginal cost	Average total cost	Average variable cost	Average fixed cost	Total cost	Variable cost	Fixed cost	Output	Labor
					0	$60	0	0
					70$	$60	1	1
					$140	$60	6	2
					$210	$60	11	3
					280$	$60	15	4
					$350	$60	13	5
					$420	$60	12	6

 

 

1.      Draw the short run total cost curve (show the total cost, fixed cost, variable cost).

 

2.      Where the marginal cost and average total cost intercept? Explain the relationship between the marginal cost and the average total cost with the help of graph.

Answer 1

Formulas to be used: TC=VC+FC , ATC = TC/Q , AVC =TVC/Q , AFC=TFC

MC = change in cost/ change in quantity

 

 

Marginal cost	Average total cost	Average variable   cost	Average fixed cost	Total cost	Variable cost	Fixed cost	Output	Labor
-	-	-	-	60	0	$60	0	0
70	130	70	60	130	70$	$60	1	1
14	33.3333	23.3333	10	200	$140	$60	6	2
14	24.5454	19.0909	5.4545	270	$210	$60	11	3
17.5	22.6666	18.6666	4	340	280$	$60	15	4
-35	31.5385	26.9231	4.6154	410	$350	$60	13	5
-70	40	35	5	480	$420	$60	12	6

 

 

According to cost theory, fixed costs tend to have a positive effect on production. Variable costs will rise in lockstep with demand as a result.

The change in cost factor because of a change in output is known as production revenue. As a consequence, variable costs and marginal costs rise in line with demand. so, the importance of unit gain will be increasing.

It is important to note that the unit gain cannot be negative. Based on the above figures, the variable cost for 15 units of output is 280, while the marginal revenue for 12 units of output is 420. This is incorrect, according to the values. so, the unit benefit turned out to be unfavorable.

Since cost theory and the traditional form of the marginal cost curve would be compromised, I'm replacing production 15 with exit 12 to provide you with a reasonable response and guidance. This means that 12 units will have a marginal revenue of 280 dollars and 15 units will have a variable cost of 420 dollars.

This is consistent with the cost principle. In addition, marginal revenue levels will be adjusted, and all job and pension departments will be good and true to marginal cost. From now on, the modified table, as well as the entire answer, will be available.

 

 

The updated table will be as follow:

 

 

Marginal   cost	Average   total cost	Average   variable cost	Average   fixed cost	Total   cost	Variable   cost	Fixed   cost	Output	Labor
-	-	-	-	60	0	$60	0	0
70	130	70	60	130	70$	$60	1	1
14	33.3333	23.3333	10	200	$140	$60	6	2
14	24.5454	19.0909	5.4545	270	$210	$60	11	3
70	28.3333	23.3333	5	340	280$	$60	12	4
70	31.5385	26.9231	4.6154	410	$350	$60	13	5
35	32	28	4	480	$420	$60	15	6

 

 

 

1.       

There are fixed and variable costs in the short term.

Total cost equals the sum of fixed and variable costs.

The total price curve is generated by vertically averaging the variable costs.

Here relationship between ATC and MC will be as follow:

§  When ATC is decreasing, MC is below AC.

§  When ATC is minimum, So MC = ATC

§  When ACT is increasing, MC is above AC

Finally, MC intersect ATC, when ATC at its minimum.

2.       

TC reduces TVC to 24.5 in the graph mentioned, which is the minimum concentration of TVC in the table.

The exact value of TC is not identified in the table due to the inconsistent output variations.

In the graph, we have data for Q = 6 , and in the next row  Q = 11 .

When the amount is between 6 and 8, TVC equals TC. The exact equivalent value of TC and TVC cannot be found in the table, but it is shown on the graph.

Both TC and TVC intersect from below at its lowest point.

TC> TVC is after the junction, while TVC> MC is before the junction.