Answer to Question #279155 in Microeconomics for Komathi

Question

A painting company has a fixed cost of RM200 and the following schedule for variable costs. Calculate average fixed cost, average variable cost, and average total cost for each quantity. What is the efficient scale of the painting company?

Quantity of houses painted per month

1

2

3

4

5

6

7

Variable cost (RM)

10

20

40

80

160

320

640

Answer 1

Solution:

Average Fixed Cost (AFC) = Total Fixed Cost $\div$ quantity

 

Average Variable cost (AVC) = Total Variable Cost $\div$ quantity

 

Average Total Cost (ATC) = Total cost $\div$ quantity

 

The above has been calculated as per the below table:

The minimum efficient scale of a firm: is the smallest level of output at which long-run average total cost is minimized, which is at the 4^th quantity.