Q.The following table shows the Total Cost Schedule of a firm. Calculate Total Fixed Cost, Total Variable Cost, Average Variable Cost, Average Cost and Marginal Cost:
Q: 0, 1, 2, 3, 4, 5, 6
Total Cost: 10, 30, 45, 55, 70, 90, 120
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Given schedule:
Q: 0, 1, 2, 3, 4, 5, 6
Total Cost (TC): 10, 30, 45, 55, 70, 90, 120
Step 1 — Total Fixed Cost (TFC):
TFC is the cost that does not change with output; it is the total cost at zero output. At Q = 0, TC = 10, so TFC = 10 at every level of output.
TFC: 10, 10, 10, 10, 10, 10, 10.
Step 2 — Total Variable Cost (TVC):
TVC = TC − TFC.
- Q=0: 10 − 10 = 0
- Q=1: 30 − 10 = 20
- Q=2: 45 − 10 = 35
- Q=3: 55 − 10 = 45
- Q=4: 70 − 10 = 60
- Q=5: 90 − 10 = 80
- Q=6: 120 − 10 = 110 TVC: 0, 20, 35, 45, 60, 80, 110.
Step 3 — Average Variable Cost (AVC):
AVC = TVC ÷ Q (not defined at Q = 0).
- Q=1: 20 ÷ 1 = 20
- Q=2: 35 ÷ 2 = 17.5
- Q=3: 45 ÷ 3 = 15
- Q=4: 60 ÷ 4 = 15
- Q=5: 80 ÷ 5 = 16
- Q=6: 110 ÷ 6 = 18.33 AVC: 20, 17.5, 15, 15, 16, 18.33.
Step 4 — Average Cost (AC) (= Average Total Cost):
AC = TC ÷ Q (not defined at Q = 0). (Also AC = AFC + AVC.)
- Q=1: 30 ÷ 1 = 30
- Q=2: 45 ÷ 2 = 22.5
- Q=3: 55 ÷ 3 = 18.33
- Q=4: 70 ÷ 4 = 17.5
- Q=5: 90 ÷ 5 = 18
- Q=6: 120 ÷ 6 = 20 AC: 30, 22.5, 18.33, 17.5, 18, 20.
Step 5 — Marginal Cost (MC):
MC = TC of n units − TC of (n−1) units (the addition to total cost from one more unit).
- 1st unit: 30 − 10 = 20
- 2nd unit: 45 − 30 = 15
- 3rd unit: 55 − 45 = 10
- 4th unit: 70 − 55 = 15
- 5th unit: 90 − 70 = 20
- 6th unit: 120 − 90 = 30 MC: 20, 15, 10, 15, 20, 30. …
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