Question

a) The following tables gives you the cost schedule fora firm producing sugar. Calculate the average costs and the marginal cost and complete the cost schedule Output(tons) FC(S) VCIS) TC(S) AFC(S) AVC(S) ATC(S) MC(S) 450 250 200 300 200 500 350 200 570 400 200 660 450 200 780 b) Draw the typical shapes of the average costs (AFC, AVC, ATC) and MC c) Explain briefly the relationship between MC and ATC.

Answer 1

e Answer: The following tables gives you the cost Schedule tör a from producing sugar @ Now calculating the average center and the marginal cost and complete the cost Schedule The total fixed cost (FC) cost (Tc) is the sum of variable cost (ve) and the .: TC - FC + VC The average fixed cost (AFC) is the fixed cat per unit of output (Q) .. AFC = FC la The average variable cost (Avc) is the variable cost por unit of output .. AVC = TclQ The average unit of total cost (ATC) is the total cost per output. .. ATC = TC/Q

The Marginal cost (MC) is the change in total cost & due to change in one additional unit of output ... MC - ATC /AQ , where 'A' stands for change them Now in calculating the values of the cost and putting the following table. output(tom) VC($) TC () AFCC) Avc(s) ATCCB) MC($) 0.80 1.80 26 200 250 450 650 300 700 066 167 2.33 350 570 -57163 770 22 400 0-50 1.65 2.15 450 200 780 980 0:44 1-73 2:17. shapes of the average costs (AFC, Ave, At() ② Draw the typical . and me.

GUPTA'S 26 ATC LAVE 250 260 270 280 290 300 310 320 330 340 350 360 370 380 390 400 410 420 490 440 450

In the above figure, we are measuring the outputs on the hölzontal axis, and costs on the vertical axis The green color downward sloping cuire is the AFC Chave. The upward sloping blue color wire is Mc Cuire. The 'V' shaped purple color curve is the ATC curve © The relationship between Mc and TC The Marginal cost (MC) is the change in total cost (TC) due to change in one additional wit of output. In the shat - sun, some inputs remain fixed. The cost on these inpute is called total fixed cost ar simply fixed. costs sum so, in the shat - run, the total cost is the of total fixed cost and total variable cost. As the total fixed cost remains fixed in the short-run,

The total cost in Shot - sun clangos basically for the charge in total variable cost. So, we can say that Me is the change in total variable cost (VC) for the change in one additional unit of output in the decreases with the increased shat-run. The Mc first of output, then reaches it's minimum, and then rises in output. the ATC with further rise also decreases first, the reaches it's minimum, and then rises With the rise in output. The MC reaches it's minimum before the minimum point of Avc, and ATC. so, when the MC starts to rise with the rise in output, the Ave and ATC still decline. The Me equals ATC When ATC is minimum. so, The MC curve intersects the ATC curve at ATC curve's minimum point.

Mc = ATC lao la), Mc = A (FC tuve 1/60 (27), MC = AFC /4Q + Ave la Now, as Fc is fixed in shail-run, Therefore, AFC / AQ = 0 So, MC = AVC/AQ That is , Mc in short-sun is the change in variable cost for the change in one additional unit of Output.