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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Your cousin Vinnie owns a painting company with fixed costs of $200 and the following schedule for variable costs:

images

Calculate average fixed cost, average variable cost, and average total cost for each quantity. What is the efficient scale of the painting company?

To determine
A fixed cost, average fixed cost, average total cost and average variable cost.

Explanation

Table - 1 shows the data for variable cost:

Table – 1

Quantity of houses painted per month Variable cost
1 10
2 20
3 40
4 80
5 160
6 320
7 640

Average fixed cost can be calculated by using the following formula:

Average fixed cost=(Fixed costQuantity) (1)

Substitute the respective value in equation (1) to calculate the average fixed cost for quantity 1:

Average fixed cost=(2001)=200

Thus, the average fixed cost for quantity 1 is $200.

Average variable cost can be calculated by using the following formula:

Average variable cost=(Variable costQuantity) (2)

Substitute the respective value in equation (2) to calculate the average variable cost for quantity 1:

Average varible cost=(101)=10

Thus, the average variable cost cost for quantity 1 is $10

Total cost can be calculated by using the following formula:

Total cost=Fixed cost+Variable cost (3)

Substitute the respective value in equation (3) to calculate the total cost for quantity 1:

Total cost=200+10=210

Thus, the total cost for quantity 1 is $210

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