Subpart (a): Explanation 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. Average fixed cost = Total fixed cost Quantity (1) Substitute the respective value in equation (1) to calculate the average fixed cost for 1 st unit. Average fixed cost = 100 1 = 100 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. Average variable cost = Total variable cost Quantity (2) Substitute the respective value in equation (2) to calculate the average variable cost for 1 st unit. Average variable cost = 50 1 = 50 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. Average total cost = Average variable cost + Average fixed cost (3) Substitute the respective value in equation (3) to calculate the average total cost for 1 st unit Subpart (b): To determine 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): To determine 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.

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.

Principles of Microeconomics

7th Edition

ISBN: 9781305156050

Author: N. Gregory Mankiw

Publisher: Cengage Learning

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Question

Chapter 14, Problem 5PA

Subpart (a):

To determine

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):

To determine

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):

To determine

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.

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