   Chapter 13, Problem 7PA

Chapter
Section
Textbook Problem

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