Question

The information about the costs of a firm is given below.

Output(Q)

AFC, $

AVC, $

1

50.00

100.00

2

25.00

80.00

3

16.67

66.67

4

12.50

65.00

5

10.00

68.00

Answer the following questions:

a. What is the firm's fixed cost?(Hint: Use FC = AFC x Q)

b. If the firm produces three units, what is the average total cost?(Hint: Use ATC = AFC + AVC)

c. What is the total cost of producing 4 units? (Hint: Use TC = ATC x Q = (AFC+AVC) x Q.) 

d. If the firm closes down and produces no output, what will be its total cost?

Answer 1

a) The firm's fixed cost is calculated as shown below;

$FC= AFC×Q$

$= 50 ×1 = 50$

b) For 3 units the average total cost is;

From the table in the figure above,

$ATC= AFC +AVC$

$66.67+16.67 =83.34$

c) The total cost of producing 4 units

$TC= ATC×Q$

$87.50 × 4 = 350$

d) If the firm closes down and produces no output the total cost in the short run will be equal to the fixed cost which is equivalent to $50$