Consider the following table, which depicts the short-run...

Consider the following table, which depicts the short-run costs of a firm q FC VC(q) TC(q) MC(q) AFC(q) AVC(q) ATC(q) 0 100 1 125 2 145 3 157 4 177 5 202 6 236 7 270 8 326 9 398 10 490 Table 2: Short-Run Costs where (FC) stands for the total fixed cost, VC(q) denotes the total variable cost, TC(q) denotes the total cost, MC(q) denotes the marginal cost, AFC(q) is the average fixed cost, and ATC(q) denotes the average total cost. A. Fill in the blanks in Table 2; then use Microsoft Excel to plot all curves. B. Following Table 2, if the level of output is zero, what is the variable cost? C. Based on Table 2, what is the fixed cost? E. Using Table2, discuss the relationship between the average fixed cost and the level of output. F. Based on Table 2, at which level of output does diminishing marginal returns occurs?

Transcript

00:01 Let's go over this question.

00:03 We need to fill out this table.

00:05 So when our quantity is zero, total cost is equal to fixed cost.

00:11 So we don't have any variable costs.

00:14 So we know that our fixed cost must be 100.

00:20 So we can fill in that part.

00:26 And this is going to be constant at all levels of q.

00:43 So we know that through that down the entire column for fixed costs, we're just going to fill in 100.

00:54 So from that we can get our variable cost.

01:02 So variable cost is equal to the total cost minus fixed cost.

01:11 So we're going to subtract column 1 from column 3.

01:18 And we can fill in the blanks for variable cost.

01:22 So as an example, for the second row when quantity is equal to 1, our variable cost is going to be 125 minus 100.

01:40 And that gives you 25.

01:44 So from this we can calculate variable cost for all of the values of q.

01:53 So let's go over the formula for marginal cost.

01:59 Marginal cost is equal to the change in total cost over the change in quantity.

02:08 So for example, for the second row, our marginal cost is going to be 125 minus 100 over 1 minus 0.

02:22 And then that gives you 25 over 1.

02:25 So our marginal cost is 25.

02:28 So take the total cost for the row that you're calculating marginal cost for, subtract the total cost in the previous row, and divide that by the change in quantity.

02:47 And we'll do that for each row.

02:51 Then we have average fixed cost.

02:58 So because this is an average, we're not looking at the change.

03:02 So it's just going to be fixed cost divided by the quantity because we're looking at an average.

03:09 So for example, for the second row, our fixed cost is 100 because it's the same for each quantity.

03:17 Then divide it by your quantity.

03:20 And then we see average fixed cost is 100.

03:29 So now going on to average variable cost.

03:38 It's just going to be variable cost divided by the quantity because again it's an average and we're not looking at the change.

03:49 So for the second row, we calculated our variable cost as 25.

03:56 And then our quantity is 1...

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