The accompanying table shows a car manufacturer’s total cost of producing cars:
Qty |TC| Variable Costs| Avg. Var. Costs| Avg. Total Costs| Avg. Fixed Costs
0 |$500,000| ---- | ---- | ---- |---- |
1 |540,000 |
2 |560,000 |
3 |570,000 |
4 |590,000 |
5 |620,000 |
6 |660,000 |
7 |720,000 |
8 |800,000 |
9 |920,000 |
10 |1,100,000 |
What is this manufacturer’s fixed cost?
For each level of output, calculate the variable cost (VC). For each level of output except zero output, calculate the average variable cost (AVC), average total cost (ATC), and average fixed cost (AFC). (In simplistic terms please)
What is the minimum-cost output?
To find the fixed cost, you can use the information in the table by deduction. Fixed costs are the costs that do not change with the level of output. In this case, the fixed costs are not directly given, but we can calculate them indirectly.
At the zero output level, the total cost is $500,000. Since there are no variable costs at zero output, the entire amount of $500,000 represents the fixed cost.
Now let's calculate the variable costs (VC) for each level of output:
Quantity (Qty) | Total Cost (TC) | Variable Costs (VC)
0 | $500,000 | $0
1 | $540,000 | $40,000
2 | $560,000 | $20,000
3 | $570,000 | $10,000
4 | $590,000 | $20,000
5 | $620,000 | $30,000
6 | $660,000 | $40,000
7 | $720,000 | $60,000
8 | $800,000 | $80,000
9 | $920,000 | $120,000
10 | $1,100,000 | $180,000
To calculate average variable cost (AVC), divide the variable cost by the quantity (Qty) at each level of output:
AVC = VC / Qty
Next, let's calculate the average total cost (ATC) and average fixed cost (AFC) for each level of output:
ATC = TC / Qty
AFC = FC / Qty
Note that AFC remains constant at all levels of output, as it represents the fixed cost per unit produced.
Now, let's fill in the missing values in the table:
Qty | TC | VC | AVC | ATC | AFC
0 | $500,000 | $0 | ---- | ---- | ----
1 | $540,000 | $40,000 | $40,000 | $540,000 | $500,000
2 | $560,000 | $20,000 | $10,000 | $280,000 | $250,000
3 | $570,000 | $10,000 | $3,333 | $190,000 | $166,667
4 | $590,000 | $20,000 | $5,000 | $147,500 | $125,000
5 | $620,000 | $30,000 | $6,000 | $124,000 | $100,000
6 | $660,000 | $40,000 | $6,667 | $110,000 | $83,333
7 | $720,000 | $60,000 | $8,571 | $102,857 | $71,429
8 | $800,000 | $80,000 | $10,000 | $100,000 | $62,500
9 | $920,000 | $120,000 | $13,333 | $102,222 | $55,556
10 | $1,100,000 | $180,000 | $18,000 | $110,000 | $50,000
To find the minimum-cost output, you need to look for the level of output at which the average total cost (ATC) is lowest. In this case, at a quantity (Qty) of 8, the average total cost is $100,000, which is the lowest value in the column. Therefore, the minimum-cost output for this manufacturer is 8 cars.
I hope this explanation helps you understand how to calculate fixed costs, variable costs, average variable costs, average total costs, and average fixed costs using the information in the table. If you have any further questions, feel free to ask!