The table below shows the short run cost for producing bicycles.
Complete all missing values in table below:
Marginal cost | Average total cost | Average variable cost | Average fixed cost | Total cost | Variable cost | Fixed cost | Output | Labor |
0 | $60 | 0 | 0 | |||||
70$ | $60 | 1 | 1 | |||||
$140 | $60 | 6 | 2 | |||||
$210 | $60 | 11 | 3 | |||||
280$ | $60 | 15 | 4 | |||||
$350 | $60 | 13 | 5 | |||||
$420 | $60 | 12 | 6 |
1. Draw the short run total cost curve (show the total cost, fixed cost, variable cost).
2. Where the marginal cost and average total cost intercept? Explain the relationship between the marginal cost and the average total cost with the help of graph.
Formulas to be used: TC=VC+FC , ATC = TC/Q , AVC =TVC/Q , AFC=TFC
MC = change in cost/ change in quantity
Marginal cost | Average total cost | Average variable cost | Average fixed cost | Total cost | Variable cost | Fixed cost | Output | Labor |
- | - | - | - | 60 | 0 | $60 | 0 | 0 |
70 | 130 | 70 | 60 | 130 | 70$ | $60 | 1 | 1 |
14 | 33.3333 | 23.3333 | 10 | 200 | $140 | $60 | 6 | 2 |
14 | 24.5454 | 19.0909 | 5.4545 | 270 | $210 | $60 | 11 | 3 |
17.5 | 22.6666 | 18.6666 | 4 | 340 | 280$ | $60 | 15 | 4 |
-35 | 31.5385 | 26.9231 | 4.6154 | 410 | $350 | $60 | 13 | 5 |
-70 | 40 | 35 | 5 | 480 | $420 | $60 | 12 | 6 |
According to cost theory, fixed costs tend to have a positive effect on production. Variable costs will rise in lockstep with demand as a result.
The change in cost factor because of a change in output is known as production revenue. As a consequence, variable costs and marginal costs rise in line with demand. so, the importance of unit gain will be increasing.
It is important to note that the unit gain cannot be negative. Based on the above figures, the variable cost for 15 units of output is 280, while the marginal revenue for 12 units of output is 420. This is incorrect, according to the values. so, the unit benefit turned out to be unfavorable.
Since cost theory and the traditional form of the marginal cost curve would be compromised, I'm replacing production 15 with exit 12 to provide you with a reasonable response and guidance. This means that 12 units will have a marginal revenue of 280 dollars and 15 units will have a variable cost of 420 dollars.
This is consistent with the cost principle. In addition, marginal revenue levels will be adjusted, and all job and pension departments will be good and true to marginal cost. From now on, the modified table, as well as the entire answer, will be available.
The updated table will be as follow:
Marginal cost | Average total cost | Average variable cost | Average fixed cost | Total cost | Variable cost | Fixed cost | Output | Labor |
- | - | - | - | 60 | 0 | $60 | 0 | 0 |
70 | 130 | 70 | 60 | 130 | 70$ | $60 | 1 | 1 |
14 | 33.3333 | 23.3333 | 10 | 200 | $140 | $60 | 6 | 2 |
14 | 24.5454 | 19.0909 | 5.4545 | 270 | $210 | $60 | 11 | 3 |
70 | 28.3333 | 23.3333 | 5 | 340 | 280$ | $60 | 12 | 4 |
70 | 31.5385 | 26.9231 | 4.6154 | 410 | $350 | $60 | 13 | 5 |
35 | 32 | 28 | 4 | 480 | $420 | $60 | 15 | 6 |
1.
There are fixed and variable costs in the short term.
Total cost equals the sum of fixed and variable costs.
The total price curve is generated by vertically averaging the variable costs.
Here relationship between ATC and MC will be as follow:
§ When ATC is decreasing, MC is below AC.
§ When ATC is minimum, So MC = ATC
§ When ACT is increasing, MC is above AC
Finally, MC intersect ATC, when ATC at its minimum.
2.
TC reduces TVC to 24.5 in the graph mentioned, which is the minimum concentration of TVC in the table.
The exact value of TC is not identified in the table due to the inconsistent output variations.
In the graph, we have data for Q = 6 , and in the next row Q = 11 .
When the amount is between 6 and 8, TVC equals TC. The exact equivalent value of TC and TVC cannot be found in the table, but it is shown on the graph.
Both TC and TVC intersect from below at its lowest point.
TC> TVC is after the junction, while TVC> MC is before the junction.