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.
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) |
0 | 120 | — | — | |||
1 | 210 | |||||
2 | 270 | |||||
3 | 315 | |||||
4 | 380 | |||||
5 | 475 | |||||
6 | 630 | |||||
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 $210, so you should start your ATC curve by placing a green point at (1, 210). For MC, plot the points between the integers: For example, the MC of increasing production from zero to one pair of boots is $90, so you should start your MC curve by placing an orange square at (0.5, 90).)
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
MC = Change in TC / Change in Q
FC = TC when output is 0
VC = TC - FC
AVC = VC /Q
ATC = TC /Q
Quantity | Total cost | MC | Fixed Cost | Variable cost | AVC | ATC |
0 | 120 | 120 | 0 | |||
0.5 | 90 | |||||
1 | 210 | 120 | 90 | 90 | 210.00 | |
1.5 | 60 | |||||
2 | 270 | 120 | 150 | 75 | 135.00 | |
2.5 | 45 | |||||
3 | 315 | 120 | 195 | 65 | 105.00 | |
3.5 | 65 | |||||
4 | 380 | 120 | 260 | 65 | 95.00 | |
4.5 | 95 | |||||
5 | 475 | 120 | 355 | 71 | 95.00 | |
5.5 | 155 | |||||
6 | 630 | 120 | 510 | 85 | 105.00 |
Q | TC | MC | FC | VC | AVC | ATC |
0 | 120 | 120 | 0 | |||
1 | 210 | 90 | 120 | 90 | 90 | 210 |
2 | 270 | 60 | 120 | 150 | 75 | 135 |
3 | 315 | 45 | 120 | 195 | 65 | 105 |
4 | 380 | 65 | 120 | 260 | 65 | 95 |
5 | 475 | 95 | 120 | 355 | 71 | 95 |
6 | 630 | 155 | 120 | 510 | 85 | 105 |
We know that the cost that is associated with Q = 0, is the fixed cost and this cost is fixed for all levels of output. Hence we have Fixed cost = $120. Variable cost varies with output so subtract fixed cost from total cost at every unit of output. Average variable cost is Variable cost divided by quantity and average total cost is total cost divided by quantity. Marginal cost is the difference between total cost for the given unit and the total cost of the previous unit. The table is summerized below
Quantity | Total cost | Marginal cost | Fixed cost | Variable cost | Average variable cost | Average total cost |
0 | 120 | 120 | 0 | |||
90 | ||||||
1 | 210 | 120 | 90 | 90 | 210 | |
60 | ||||||
2 | 270 | 120 | 150 | 75 | 135 | |
45 | ||||||
3 | 315 | 120 | 195 | 65 | 105 | |
65 | ||||||
4 | 380 | 120 | 260 | 65 | 95 | |
95 | ||||||
5 | 475 | 120 | 355 | 71 | 95 | |
155 | ||||||
6 | 630 | 120 | 510 | 85 | 105 |
The graph is plotted below
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.
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