Question

4. Various measures of cost

Douglas Fur is a small manufacturer of fake-fur boots in Philadelphia. 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) 20 120 80 20 200 40 20 240 45 285 20 20 340 85 20 115 540 20

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 $200, so you should start your ATC curve by placing a green point at (1, 200). For MC, plot the points between the integers: For example, the MC of increasing production from zero to one pair of boots is $80, so you should start your MC curve by placing an orange square at (0.5, 80).)

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

Answer 1

Here we see that total cost is $120 when Q is 0 so fixed cost is also $120.

Now variable cost is TC - $120

AVC = VC/Q

ATC = TC/Q

MC = change in TC / change in Q

Now MC is drawn within the two levels of output while AVC and ATC are drawn on the specific level of output.

Quantity	Total cost	Marginal cost	Fixed cost	Variable cost	Average variable cost	Average total cost
0	120		120	0
1	200	80	120	80	80	200
2	240	40	120	120	60	120
3	285	45	120	165	55	95
4	340	55	120	220	55	85
5	425	85	120	305	61	85
6	540	115	120	420	70	90

Cost of production 120 Dollars 80 80 8528590 60555561 40 - 4555 0 1 2 3 4 Quantity 5 6 7 Average variable cost -Average total cost Marginal cost