Cost Calculations

Cost Calculations - SHORTRUNPRODUCTIONCOSTS Labo Outpu r t...

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SHORT RUN PRODUCTION COSTS Labo r Outpu t AF C AV C AT C MC 0 0 - - - 1 4 6.2 5 (a) ? (b) ? 6.2 5 2 10 (c)? 5 (d) ? (e)? The table above shows output and the labor hired per day, and some costs.  Find the  answers for a, b, c, d and e.  - (a) What is the AVC when output is 4 and 1 unit of Labor is hired?  o AVC = TVC/Q = ?/4  o TVC = (Units of Labor) x (Wage Rate) = 1 x ?  o We can find the Wage Rate using the information in Row 3.  TVC = AVC x Q = $5 x 10 = $50  Since TVC = $50 = 2 x ?, then the wage rate = $50/2 = $25.   ( NB: the wage rate is constant for the entire problem. o Now that we know the wage rate we can find the TVC for row 1 i.e. 1 x  $25 = $25 o Therefore, AVC = $25/4 = $6.25  - (b) What is the ATC when output is 4 and 1 unit of Labor is hired?  o ATC = AFC + AVC = $6.25 + $6.25 = $12.50 
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- (c) What is the AFC when output is 10 and 2 units of labor are hired? 
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Cost Calculations - SHORTRUNPRODUCTIONCOSTS Labo Outpu r t...

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