Question

A firm's SMC schedule is shown in the following table. The total fixed cost of the firm is Rs. 100. Find the TVC, TC and SAC schedules of the firm. \[\begin{array}{|c|c|c|} \hline \textbf{Q} & \textbf{SMC} & \textbf{MC} \\ \hline \text{0} & \text{500} \\ \hline \text{1} & \text{500} \\ \hline \text{2} & \text{300} \\ \hline \text{3} & \text{200} \\ \hline \text{4} & \text{300} \\ \hline \text{5} & \text{500} \\ \hline \text{6} & \text{800} \\ \hline \end{array}\]

Hint:

Remember that SAC can help in determining whether a firm is operating efficiently in the short run. A falling SAC indicates increasing efficiency, while a rising SAC indicates the opposite.

Answer 1

Step 1: Understanding the cost schedules.
In this question, we are given the firm's SMC (Short-run Marginal Cost) schedule and asked to compute the TVC (Total Variable Cost), TC (Total Cost), and SAC (Short-run Average Cost) schedules. The firm's total fixed cost (TFC) is given as Rs. 100.

Step 2: Calculate Total Variable Cost (TVC).
We know that: \[ \text{TVC}_Q = \text{SMC}_Q \times \text{Quantity Sold (Q)} \] For each quantity (Q), calculate TVC by multiplying the SMC with the corresponding Q.

Step 3: Calculate Total Cost (TC).
Total cost (TC) is the sum of total fixed cost (TFC) and total variable cost (TVC). Hence, \[ \text{TC} = \text{TFC} + \text{TVC} \]

Step 4: Calculate Short-run Average Cost (SAC).
SAC is the total cost (TC) divided by the quantity sold (Q). \[ \text{SAC} = \frac{\text{TC}}{Q} \]