The following chart lists some short run cost data for a company. The only varia

Question

The following chart lists some short run cost data for a company. The only variable input is labor. Use the information to answer questions 2 through 6 FC AFC CAVC TC ATC MC 0 100 595.00 390 505 2005 125 109.29 2265 301.25 155 2. What are the fixed costs? 1000 B 1500 2000 D) 3000 3. What is the average total cost at 2 units of output? A) 45 B) 95 C) 190 845 4· What is the total cost at 8 units of output? 2410 B) 910 C) 1140 D) 2030 5 what is the average variable cost at 5 units of output? / 101 B) 115 c) 401 D) 95 What is the marginal cost of the 7th unit of output? A) 115 6. 125 C 135 ) 145

Explanation / Answer

2. Fixed cost = Total Cost - Total Variable Cost = 2005 - 505 = $ 1500

3. Fixed cost remains fixed at each level of output i.e. 1500

TVC at 1 unit of output = AVC X Quantity = 100 x 1 = 100

TC at 1 unit of output = 100 + 1500 = 1600

TC at 2nd unit of output = TC at 1st unit + MC = 1600 + 90 = 1690

ATC = TC/Q = 1690/2 = 845

4. TC = ATC x Quantity = 301.25 x 8 = $ 2410

5. AVC = TVC/Q = 505/5 = 101

6. MC = Difference in TC/Difference in quantity

TC at 6 unit = TC at 5th unit + MC = 2005 + 125 = 2130

TC at 7th unit = 2265

MC at 7th unit = TC at 7th unit - TC at 6th unit = 2265 - 2130 = 135

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