Anonymous
Anonymous asked in Social ScienceEconomics · 10 years ago

# Average Variable Cost Question?

Output 1 2 3 4 5 6 7 8 9

TC 85 100 111 130 160 198 252 320 405

The above table gives the Total Cost (TC) for a firm at various quantities produced.

Variable Cost is 40 for 2 units.

Question:

What is the Average Variable Cost of 6 units?

Plz explain

Also

if possible these questions too, but the AVC one is very important, I cant quite get how to do it...

What is the Average Fixed Cost of 8 units

What is the shut-down output of this firm (i.e., no production below this output)?

What is the output that gives 0 Economic Profit?

What is the price that gives 0 Economic Profit?

What is profit maximizing output at 0 Economic Profit?

What is the economic profit (+)/loss(-) at P = \$54?

What is the long-run equilibrium price if this is a perfectly competitive industry?

What is the output of the industry at P = \$19 if there are 80 firms in the industry?

Update:

Sorry, just saw that the graph looks confusing, at 6 units the total cost is 198, i know its hard to see, PLZ HELP D: MIDTERM TOMMOROW AND IM KIND OF RUNNING OUT BRAINPOWER!!!

Relevance

At 6 units, total cost is 198. At 2 units, total cost is 100 and variable cost is 40. That means that fixed cost is (100-40) 60. Since this is fixed, it is the same at all output levels. So if the total cost is 198, and fixed cost is 60, then variable cost is 138. That would be total variable cost; average variable cost would be TVC/Q, or 138/6, or 23.

For the rest of the questions (and the AVC one also, I just gave you a quick answer for that one), the best way to answer a bunch of questions is to add more lines to the table, and that will give you the information you need to answer various questions about it.

You would want to add these:

Total fixed cost (TFC): that would be 60, at every level, as figured in the answer above.

Total variable cost (TVC): that would be TC minus TFC.

Average variable cost (AVC): that would be TVC / Q

Marginal cost (MC): that would be TVC at each Q minus TVC at the previous level of Q. Alternatievely, it would also equal TC for each Q minus TC at the previous Q.

A quick look at your specific questions:

AFC at 8 units: TFC (60) divided by 8.

Shut-down output: The output level where TVC = TR. You don't have enough information without the price, unless you go down the list of questions to find a market price of \$19, and determine that the firm is in perfect competition and the price is the same at all levels of output. TR=PxQ; TVC=TC/Q - you need the Q that makes TVC = TR.

Zero economic profit would be the level where TC = TR. Use the above calculations to determine this.

The price that gives zero economic profit would be P=MC=MR, which is equilibrium in perfect competition.

Economic profit would be TR minus TC. You would need to figure the output level at this price to determine that. You get that by equating MC with MR.

Long run equilibrium would be P=MC=MR.

Industry output would be equilibrium output for the firm, times the number of firms.

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