Answer to Question #267708 in Macroeconomics for Meril

Question

Table – 1 shows the fixed cost and variable cost against level of output produced:

Table - 1

Quantity (Units) Fixed Cost (Rs.) Variable Cost (Rs.)

0 100 0

1 100 5

2 100 7

3 100 10

4 100 13

5 100 18

6 100 26

7 100 35

Find Average Fixed Cost, Average Variable Cost, Total Cost, Average Total Cost, and Marginal Cost for level of output. Draw the diagram for the same.

Answer 1

Average fixed costs- Obtained by dividing total fixed costs by output.

Average Variable Cost- Calculated by dividing total fixed variable costs by output.

Total Cost - Obtained by adding total fixed and total variable costs.

Average Total Cost- Also called unit cost. Total cost divide by quantity.

Marginal Cost- It can be found by calculating the change in total cost when output is increased by one unit.

Diagram as:

The values in the columns are calculated as follows:

Total Cost column is calculated by adding the contents of fixed cost column and variable cost column.

Average Fixed Cost column is calculated by dividing what is in fixed cost column by units.

Average Total Cost column is calculated by dividing what is total cost column by units column.

Marginal Cost column is obtained by subtracting the previous element from next element in the column of Total Cost