Subpart (a):
The fixed cost, average variable cost , average total cost , and marginal cost, profit or loss of the firm if they shutdown, profit or loss of the firm if they continue to produce.
Subpart (a):
Explanation of Solution
The table – 1 represents the value of the cost of the production.
Table – 1
Quantity | Total fixed cost | Total variable cost |
0 | 100 | 0 |
1 | 100 | 50 |
2 | 100 | 70 |
3 | 100 | 90 |
4 | 100 | 140 |
5 | 100 | 200 |
6 | 100 | 360 |
The average fixed cost can be determined by using the formula.
Substitute the respective value in equation (1) to calculate the average fixed cost for 1st unit.
The average fixed cost is $100.
The table - 2 shows the value of the average fixed cost that is obtained by using the equation (1).
Table - 2
Quantity | Total fixed cost | Total variable cost | Average fixed cost |
0 | 100 | 0 | – |
1 | 100 | 50 | 100 |
2 | 100 | 70 | 50 |
3 | 100 | 90 | 33.3 |
4 | 100 | 140 | 25 |
5 | 100 | 200 | 20 |
6 | 100 | 360 | 16.7 |
The average variable cost can be determined by using the formula.
Substitute the respective value in equation (2) to calculate the average variable cost for 1st unit.
The average variable cost is $50.
The table -3 shows the value of the average variable cost that is obtained by using the equation (2).
Table – 3
Quantity | Total fixed cost | Total variable cost | Average fixed cost | Average variable cost |
0 | 100 | 0 | – | – |
1 | 100 | 50 | 100 | 50 |
2 | 100 | 70 | 50 | 35 |
3 | 100 | 90 | 33.3 | 30 |
4 | 100 | 140 | 25 | 35 |
5 | 100 | 200 | 20 | 40 |
6 | 100 | 360 | 16.7 | 60 |
The average total cost can be determined by using the following formula.
Substitute the respective value in equation (3) to calculate the average total cost for 1st unit.
The average total cost is $150.
The table -4 shows the value of the average total cost thatis obtained by using the equation (3).
Table – 4
Quantity | Total fixed cost | Total variable cost | Average fixed cost | Average variable cost | Average total cost |
0 | 100 | 0 | – | – | – |
1 | 100 | 50 | 100 | 50 | 150 |
2 | 100 | 70 | 50 | 35 | 85 |
3 | 100 | 90 | 33.3 | 30 | 63.3 |
4 | 100 | 140 | 25 | 35 | 60 |
5 | 100 | 200 | 20 | 40 | 60 |
6 | 100 | 360 | 16.7 | 60 | 76.7 |
The marginal cost can be determined by using the formula.
Substituting the respective value into equation (4) and calculate the marginal cost for 1st unit.
The marginal cost is $20.
The table -5 shows the value of the marginal cost that is obtained by using the equation (4).
Table – 5
Quantity | Total fixed cost | Total variable cost | Average fixed cost | Average variable cost | Average total cost | Marginal cost |
0 | 100 | 0 | – | – | – | – |
1 | 100 | 50 | 100 | 50 | 150 | 50 |
2 | 100 | 70 | 50 | 35 | 85 | 20 |
3 | 100 | 90 | 33.3 | 30 | 63.3 | 20 |
4 | 100 | 140 | 25 | 35 | 60 | 50 |
5 | 100 | 200 | 20 | 40 | 60 | 60 |
6 | 100 | 360 | 16.7 | 60 | 76.7 | 160 |
Concept Introduction:
Average fixed cost: The average fixed cost is the total fixed cost per unit of the output produced by the firm.
Average total cost: Initially average total cost will decline as fixed cost spreads over a larger number of units but the curve will go up when the marginal cost increases.
Average variable cost: Average variable cost refers to the variable cost per unit.
Marginal cost (MC): The marginal cost refers to the amount of an additional cost incurred in the process of increasing one more unit of output.
Subpart (b):
The fixed cost, average variable cost, average total cost, and marginal cost, profit or loss of the firm if they shutdown, profit or loss of the firm if they continue to produce.
Subpart (b):
Explanation of Solution
Suppose the price of the ball bearing $50, the firm can produce 4 unit of the output because the price is equal to marginal cost that is the profit maximizing condition. Then the total cost of the production is $240
Concept Introduction:
Average fixed cost: The average fixed cost is the total fixed cost per unit of the output produced by the firm.
Average total cost: Initially average total cost will decline as fixed cost spreads over a larger number of units but the curve will go up when the marginal cost increases.
Average variable cost: Average variable cost refers to the variable cost per unit.
Marginal cost (MC): The marginal cost refers to the amount of an additional cost incurred in the process of increasing one more unit of output.
Subpart (c):
The fixed cost, average variable cost, average total cost, and marginal cost, profit or loss of the firm if they shutdown, profit or loss of the firm if they continue to produce.
Subpart (c):
Explanation of Solution
Suppose CEO decides to produce 1 unit of ball, then the total cost of the firm is $150
Concept Introduction:
Average fixed cost: The average fixed cost is the total fixed cost per unit of the output produced by the firm.
Average total cost: Initially average total cost will decline as fixed cost spreads over a larger number of units but the curve will go up when the marginal cost increases.
Average variable cost: Average variable cost refers to the variable cost per unit.
Marginal cost (MC): The marginal cost refers to the amount of an additional cost incurred in the process of increasing one more unit of output.
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