HW5_PartII_Q6_solution

HW5_PartII_Q6_solution - or $5,200. The average total cost...

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6. Textbook page 271, Q13. Answer: A is the average fixed cost, AFC, when the output is 20. Average fixed cost equals total fixed cost divided by output, or AFC = TFC ÷ Q. Rearranging gives TFC = AFC × Q. So the total fixed cost for the problem equals $120 × 10, which is $1,200. A equals $1,200, TFC, divided by 20, Q, which is $60. B is the average variable cost, AVC, when output is 20. Use the result that AFC + AVC = ATC by rearranging to give AVC = ATC - AFC, so average variable cost equals $150 - $60, which is $90. D is the average total cost, ATC, when output, Q, equals 40. Average total cost equals total cost divided by output, or ATC = TC ÷ Q. Rearranging gives TC = ATC × Q. So the total cost when 30 units are produced is $130 × 30, which is $3,900. Marginal cost, MC, equals the change in total cost divided by the change in quantity, or MC = TC ÷ Q. Rearranging gives TC = MC × Q, so the change in total cost between Q = 30 and Q = 40 is $130 × 10, or $1,300. Therefore the total cost when Q equals 40 is $3,900 + $1,300,
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Unformatted text preview: or $5,200. The average total cost when Q is 40 is $5,200 40, or $130. C is the average variable cost, AVC, when output, Q, equals 40. Use the result that AFC + AVC = ATC by rearranging to give AVC = ATC -AFC. As a result, average variable cost equals $130 -$30, which is $100. E is the marginal cost, MC, when output increases from 40 units to 50 units. Marginal cost, MC, equals the change in total cost divided by the change in quantity, or MC = TC Q. To calculate marginal cost, the total cost when output is 40 and the total cost when output is 50 are needed. Average total cost equals total cost divided by output, or ATC = TC Q. Rearranging gives TC = ATC Q. So the total cost when 40 units are produced is $130 40, which is $5,200 and total cost when 50 units are produced is $132 50, which is $6,600. So the marginal cost equals ($6,600 -$5,200) 10, which equals $140....
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