To compute:
The value of TFC, TVC, AFC,
Answer to Problem 1E
| Total Output | Costs | TFC | TVC | AFC | AVC | ATC | MC |
| 0 | 100 | 100 | 0 | ||||
| 1 | 150 | 100 | 50 | 100 | 50 | 150 | 50 |
| 2 | 225 | 100 | 125 | 50 | 62.5 | 112.5 | 75 |
| 3 | 230 | 100 | 130 | 33.33 | 43.33 | 76.67 | 5 |
| 4 | 300 | 100 | 200 | 25 | 50 | 75 | 70 |
| 5 | 400 | 100 | 300 | 20 | 60 | 80 | 100 |
Explanation of Solution
TFC is the total fixed cost, TVC is the total variable cost, AFC is the Average fixed cost, AVC is the average variable cost, ATC is the average total cost and MC is the marginal cost.
TFC is constant throughout the production process; so, the TFC could be find when the output is 0.At 0 level of output, total cost is 100, which implies that the TFC is 100.
TVC is calculated by the following relation:
AFC is calculated by dividing TFC with output.
Therefore, AFC at 2nd unit is,
Average variable cost is calculated by dividing TVC with output.
AVC at 2ndunit,
ATC is the total cost by output.
ATC at 2nd unit,
MC is the change in total cost per an additional unit.
MC at 3rd unit,
Total fixed cost:
The cost incurred by a firm which remains constant irrespective of level of output.
Total variable cost:
The cost incurred in producing units of output which varies with the production level.
Total cost:
The sum of total variable cost and total fixed cost is referred as total cost.
Marginal Cost:
The additional cost of producing an extra unit of output is referred to as the marginal cost of producing that unit of output.
Average cost:
It is the cost of per unit of output produced. It is calculated by dividing total cost with variable units of output.
Average fixed cost:
It is the fixed cost divided by units of output.
Average variable cost:
It is total variable cost divided by units of output.
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