Question

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

Hint:

TFC = TC at Q=0; TVC = TC - TFC; AVC = TVC/Q; AC = TC/Q; MC = change in TC per unit.

Answer 1

Step 1: Find Total Fixed Cost (TFC):
TFC is the cost that does not change with output, so it equals Total Cost at Q = 0. From the table, $TC(0) = 10$, so TFC = 10 for every level of output.

Step 2: Find Total Variable Cost (TVC = TC − TFC):
$TVC(0)=0$, $TVC(1)=30-10=20$, $TVC(2)=45-10=35$, $TVC(3)=55-10=45$, $TVC(4)=70-10=60$, $TVC(5)=90-10=80$, $TVC(6)=120-10=110$.

Step 3: Find Average Variable Cost (AVC = TVC / Q):
$AVC(1)=20/1=20$, $AVC(2)=35/2=17.5$, $AVC(3)=45/3=15$, $AVC(4)=60/4=15$, $AVC(5)=80/5=16$, $AVC(6)=110/6\approx18.33$.

Step 4: Find Average Cost (AC = TC / Q):
$AC(1)=30/1=30$, $AC(2)=45/2=22.5$, $AC(3)=55/3\approx18.33$, $AC(4)=70/4=17.5$, $AC(5)=90/5=18$, $AC(6)=120/6=20$.

Step 5: Find Marginal Cost (MC = change in TC / change in Q):
$MC(1)=30-10=20$, $MC(2)=45-30=15$, $MC(3)=55-45=10$, $MC(4)=70-55=15$, $MC(5)=90-70=20$, $MC(6)=120-90=30$.

Final Answer:
TFC = 10 throughout. TVC = 0,20,35,45,60,80,110. AVC = -,20,17.5,15,15,16,18.33. AC = -,30,22.5,18.33,17.5,18,20. MC = 20,15,10,15,20,30 (for Q=1 to 6). Notice AVC and AC are both minimum at Q=3-4 (15 and 17.5-18.33), and MC (10) is below both there before rising and eventually cutting them from below — consistent with standard cost-curve theory.