Using the following short-run cost schedule for a firm with $TFC = Rs.\,60$:

| Q | TFC | TVC | TC | AFC | AVC | ATC | MC |
|---|---|---|---|---|---|---|---|
| 1 | 60 | 40 | 100 | 60 | 40 | 100 | 40 |
| 2 | 60 | 70 | 130 | 30 | 35 | 65 | 30 |
| 3 | 60 | 90 | 150 | 20 | 30 | 50 |

Question

Using the following short-run cost schedule for a firm with $TFC = Rs.\,60$:

| Q | TFC | TVC | TC | AFC | AVC | ATC | MC |
|---|---|---|---|---|---|---|---|
| 1 | 60 | 40 | 100 | 60 | 40 | 100 | 40 |
| 2 | 60 | 70 | 130 | 30 | 35 | 65 | 30 |
| 3 | 60 | 90 | 150 | 20 | 30 | 50 | 20 |
| 4 | 60 | 100 | 160 | 15 | 25 | 40 | 10 |
| 5 | 60 | 120 | 180 | 12 | 24 | 36 | 20 |
| 6 | 60 | 150 | 210 | 10 | 25 | 35 | 30 |
| 7 | 60 | 200 | 260 | 8.57 | 28.57 | 37.14 | 50 |

identify (a) the output at which AVC is at its minimum, (b) the output at which ATC is at its minimum, and (c) explain in your own words why MC must equal AVC and ATC exactly at their respective minimum points.

Accepted Answer

**(a)** Scanning the AVC column — 40, 35, 30, 25, 24, 25, 28.57 — the smallest value is **Rs. 24, at Q = 5**; AVC falls up to Q = 5 and rises from Q = 6 onward.

**(b)** Scanning the ATC column — 100, 65, 50, 40, 36, 35, 37.14 — the smallest value is **Rs. 35, at Q = 6**; ATC falls up to Q = 6 and rises from Q = 7 onward. Notice ATC's minimum (Q = 6) occurs one unit AFTER AVC's minimum (Q = 5), because AFC (60, 30, 20, 15, 12, 10, 8.57) is still falling at Q = 6, pulling ATC down a little further even though AVC has already turned upward. …

Q	TFC	TVC	TC	AFC	AVC	ATC	MC
1	60	40	100	60	40	100	40
2	60	70	130	30	35	65	30
3	60	90	150	20	30	50	20
4	60	100	160	15	25	40	10
5	60	120	180	12	24	36	20
6	60	150	210	10	25	35	30
7	60	200	260	8.57	28.57	37.14	50

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