Question

3. Nokia sells a new budget cell phone. Based on information provided by the accounting department, the average variable cost is: AVC = $30 + Q The average fixed cost is: AFC = $9,000,000/Q where Q is the number of phones. The phone sells for $50. Show your work/thought process:

Answer 1

Q. Average costs are the cost per unit of any produrt. 0 0 They are obtained neing following formula :- ® Average lost = Total cost . TL . (AC) No. of units a 0 0 og 'outhut 0 0 1. Here I - ontol 0 0 0 0 0 0 0 c = 30+ Q This is variable Cost her unit. In order to derive Total Variable Coat (TVC), we will multiply AVC witte a. So, TVC= AVC *q 1 = (30+q) q TVC = 30q+q² l Now, similar will be the technique for Fixed Coat TFC = AFC *q - (9000,000) *q 0 0 0 0 0 0 0 [TFC = 9,000,000

- Cost . • Total lost is sum total of Total fixed & Variable 0 TC=TFC + TFC 8 (TL=30g 9,000,000 + 30q+q2| Now, Average Cost (HC) - IAC = 9000,000 + 30 + 9) 0 0 0 0 0 0 Marginal loet: It is the additional cost incorred to produce additional unit of a conmmodity. It is obtained by first order diffesentiation of Total lost, with respect to output MC = d (TC)= d (9000,000 + 309 +9) dq 1 da IMC = 30 + 2q ] 5b. Level of outhet, where Average Total Cost is minimized. This is obtained by finding the point on Average Total cost crue where slope of curre is zero 0 0 0 UU

ü ? ? This is also obtained by equating först asder differential with respect to output of the ATC une equal to zero. . so, we need to find value of q for which a (ATC) = 0 SATC ? ? ? ? ? o y farande (ooper 4 30 +4)=0 min mening June (190,00 * 9 *) * , 10) tour (12) =0" name Ae ? - 9000000 to + 1 = 0 2 UUUUUUU - 1 = 9,000,000 or q² = 9,000,000 in q = 19000,000 - 3000 do at the level of outhut is equal to 3000 the average total cost is minimised.