Question

4. Various measures of cost 

Douglas Fur is a small manufacturer of fake-fur boots in San Francisco. The following table shows the company's total cost of production at various production quantities. 

Fill in the remaining cells of the following table. 

Quantity	Total Cost	Marginal Cost	Fixed Cost	Variable Cost	Average Variable Cost	Average Total Cost
(Pairs)	(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars per pair)	(Dollars per pair)
0	120				—	—
1	210
2	270
3	315
4	380
5	475
6	630

On the following graph, plot Douglas Fur's average total cost (ATC) curve using the green points (triangle symbol). Next, plot its average variable cost (AVC) curve using the purple points (diamond symbol). Finally, plot its marginal cost (MC) curve using the orange points (square symbol). (Hint: For ATC and AVC, plot the points on the integer; for example, the ATC of producing one pair of boots is $210, so you should start your ATC curve by placing a green point at (1, 210). For MC, plot the points between the integers: For example, the MC of increasing production from zero to one pair of boots is $90, so you should start your MC curve by placing an orange square at (0.5, 90).) 

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

Answer 1

MC = Change in TC / Change in Q

FC = TC when output is 0

VC = TC - FC

AVC = VC /Q

ATC = TC /Q

Quantity	Total cost	MC	Fixed Cost	Variable cost	AVC	ATC
0	120		120	0
0.5		90
1	210		120	90	90	210.00
1.5		60
2	270		120	150	75	135.00
2.5		45
3	315		120	195	65	105.00
3.5		65
4	380		120	260	65	95.00
4.5		95
5	475		120	355	71	95.00
5.5		155
6	630		120	510	85	105.00

250 200 150 MC AVC 100 KATC 50 0 3.5 0 0.5 1.5 2 2.5 3 4 4.5 5 5.5 6

Answer 2

Q	TC	MC	FC	VC	AVC	ATC
0	120		120	0
1	210	90	120	90	90	210
2	270	60	120	150	75	135
3	315	45	120	195	65	105
4	380	65	120	260	65	95
5	475	95	120	355	71	95
6	630	155	120	510	85	105

COSTS (Dollars per pair) 0 1 5 1 2 3 4 QUANTITY (Pairs of boots)

Answer 3

We know that the cost that is associated with Q = 0, is the fixed cost and this cost is fixed for all levels of output. Hence we have Fixed cost = $120. Variable cost varies with output so subtract fixed cost from total cost at every unit of output. Average variable cost is Variable cost divided by quantity and average total cost is total cost divided by quantity. Marginal cost is the difference between total cost for the given unit and the total cost of the previous unit. The table is summerized below

Quantity	Total cost	Marginal cost	Fixed cost	Variable cost	Average variable cost	Average total cost
							0	120		120	0
		90
1	210		120	90	90	210
		60
2	270		120	150	75	135
		45
3	315		120	195	65	105
		65
4	380		120	260	65	95
		95
5	475		120	355	71	95
		155
6	630		120	510	85	105

The graph is plotted below

Cost structure 250 200 150 100 50 0 0 4 6 Marginal cost Average variable costAverage total cost