Question

10. Answer the questions below on the basis of the diagram. $10 , ATC AVC Cost per unit . 9 10 1 2 3 4 5 6 7 8 Quantity (in 1,000s) What does the graph indicate about: a. AVC at 6000 units of output? • b. ATC at 6000 units of output? c. AFC at 6000 units of output? d. TVC at 6000 units of output? e. TFC at all levels of output? f. TC at 10,000 units of output? g. When diminishing returns set in?

Answer 1

Ans.10. a) AVC at 6,000 units of output

AVC = $4 per unit

b) ATC at 6,000 units of output

ATC = $5.5 per unit

c) AFC at 6,000 units of output

ATC = AFC+ AVC

AFC = ATC - AVC

AFC = $5.5 - $4

AFC = $1.5 per unit

d) TVC at 6,000 units of output

AVC = TVC /Q

TVC = AVC x Q

TVC = $4 x 6,000

TVC = $24,000

e) AFC = TFC /Q

TFC = AFC x Q

TFC = $1.5 x 6,000

TFC = $9,000

f) TC at 10,000

ATC at 10,000 = $9 per unit

ATC = TC /Q

TC = ATC x Q

TC = $9 x 10,000

TC = $90,000

g) At Q = 3,000 where diminishing marginal returns set in because producing one more unit leads to the decrease in the marginal product and marginal cost increases.