Question

QUESTION 1 VC 260 What is the MC of the second unit? O a. 27.5 b. 20 O c. 30 d. 25 QUESTION 2 AVC BIRI 25 II 260 What is the MC of the 5th unit? 0 a 40 b. 30 C. 50 d. 60 QUESTION 3 TIH M 11 260 How large are the fixed costs? a. 100 b. 180 c. 120 d. 150

Answer 1

Q 1) We use the following formula to complete the table in the given question,

Total cost = Fixed cost + Variable cost

Marginal cost = Total cost of nth unit - Total cost of (n - 1)th unit

Average variable cost = Total variable cost / quantity produced

Average total cost = Total cost / quantity produced

In this question, it is given that the marginal cost of the 1st unit is 30. This means that the total cost of the previous unit that 0 quantity is 120. At 0 quantity, variable cost is 0 as this cost changes with the level of output and in this case since no output is produced, variable cost is 0. So, the total cost of 120 is the fixed cost. There is only fixed cost at 0 level of output. Since fixed cost remains the same for all levels of output, it is 120 for all levels of output in this question.

QUANTITY	FIXED COST	VARIABLE COST	TOTAL COST	MARGINAL COST	AVERAGE VARIABLE COST	AVERAGE TOTAL COST
0	120	0	120	-	-	-
1	120	30	150	30	30	150
2	120	50	170	20	25	85
3	120	70	190	20	23.33	63.33
4	120	100	220	30	25	55
5	120	140	260	40	28	52

So, the marginal cost of the second unit is 170 - 150 = 20 is the answer.