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. 

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 $160, so you should start your ATC curve by placing a green point at(1, 160). For MC, plot the points between the integers: For example, the MC of increasing production from zero to one pair of boots is $100, so you should start your MC curve by placing an orange square at (0.5, 100).) 

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

Answer 1

We use the fact that fixed cost is same for all output levels and that when Q is 0, all cost is only fixed cost. Hence Fixed cost is 60.

Next we use ATC = TC/Q and AVC = VC/Q. Here VC is total cost - fixed cost or 60.

Finally we use MC = change in TC/ change in Q.

Quantity	Total cost	Marginal cost	Fixed cost	Variable cost	Average variable cost	Average total cost
0	60		60	0
1	160	100	60	100	100	160
2	220	60	60	160	80	110
3	270	50	60	210	70	90
4	340	70	60	280	70	85
5	450	110	60	390	78	90
6	630	180	60	570	95	105

Cost of production 160 110 100 Dollars 9110 8590 78 80 700 . 1 2 5 6 7 3 4 Quantity Average variable cost Average total cost