Chapter 11, Problem 1P

To determine

Concept Introduction:

Fixed cost: It is a cost which is constant in the short run, it is not related to any change in the production of goods or services, it will be fixed disregarding of an increase or decrease in output.

Variable cost: This cost is directly proportional to the level of output produced, it increases with an increase in output and vice versa.

Marginal Cost (MC): It refers to an additional cost of an additional unit produced. It is generally an additional variable cost. The formula to calculate marginal cost is:

Here,

• MC is the marginal cost.
• is the change in total cost.
  
• is the change in quantity.
  

Average Total Cost (ATC): It is also referred as the total cost of a single unit, it includes the overall cost, that is variable cost as well as the fixed cost. A firm should always maintain the price of a product above the ATC, otherwise it will result in a loss for the firm. The formula for ATC is:

Here,

• AFC is the average fixed cost.
• AVC is the average variable cost.
• ATC is the average total cost.