Use the preceding graph to answer questions 3 through 5. Find the shutdown point. What is the qu

Use the preceding graph to answer questions 3 through 5....

Key Concepts

Shutdown Point

The shutdown point is the level where the price of the product equals the average variable cost (AVC) of production. In the short run, if the market price falls below the AVC, the firm minimizes its losses by ceasing production, as running the plant would incur additional variable costs that cannot be covered by the revenue earned.

Average Variable Cost (AVC)

Average Variable Cost is the variable cost per unit of output, computed by dividing total variable costs by the quantity produced. It is a crucial metric for short-run decisions because it determines the minimum price at which production is viable to cover these costs.

Average Total Cost (ATC)

Average Total Cost represents the total cost per unit, including both fixed and variable components. It is calculated by dividing total costs by the quantity produced and is used to assess overall production efficiency and profitability when the market price is compared to it.

Total Variable Cost (TVC) and Total Cost (TC)

Total Variable Cost is the aggregate of all costs that vary with output, while Total Cost includes both total variable costs and fixed costs. These measures are important for understanding the complete cost structure and for evaluating how revenue compares with cost at different levels of production.

Profit (Loss) Calculation

Profit or loss is determined by subtracting the total costs from the total revenue. At the shutdown point, while the firm minimizes its losses by not producing (thereby avoiding additional variable costs), any losses incurred typically stem from fixed costs that must be paid regardless of production levels.

Transcript

00:01 In this question we're supposed to calculate the average fixed cost, the average variable cost, the average total cost and the marginal cost for suits of course.

00:09 Now here you'll see the first three columns i have are total fixed cost, total variable cost and total cost that we calculated in the previous question.

00:18 Now let's use these to calculate the average fixed cost, average variable cost, average total cost and marginal cost.

00:26 Now what is average fixed cost? average fixed cost is the ratio of total fixed cost to the output now let's calculate the average fixed cost for this when the output is 30 so forths per week the total fixed cost is thousand so the average fixed cost becomes thousand divided by 30 which is 33 .33 so we have average fixed cost as 33 .3 then you write it a little bit better $33 .3 .33 .3 is the average fixed cost when output is 30.

01:14 When output is 70, total fixed cost is still the same which is thousand.

01:20 It's actually the same for all of them.

01:22 So the output is 70 to do fixed cost is thousand.

01:26 Average fixed cost becomes thousand divided by 70 which is 14 .29.

01:32 So we have average fixed cost, 14.

01:36 $29.

01:39 When output is 120, total fixed cost is $1 ,000.

01:43 Average fixed cost becomes $8 .33.

01:48 So we have $8 .33 as average fixed cost here.

01:57 When the output is 160, total fixed cost is $1 ,000.

02:03 So the average fixed cost becomes $1 ,000 divided by $1 .60, which is $6 .25.

02:13 When output is $1 .90, fixed cost is again thousand and the average fixed cost becomes thousand divided by 190 that's 5 .26 dollars so we have 5 .26 when output is 210 fixed cost again is thousand dollars and the average fixed cost becomes thousand divided by two hundred and ten which is four point seven six dollars when output is 220 average fixed cost is thousand by 220 which is four point three dollars oh my bad 4 .55 dollars we have 4 .55 dollars now let's calculate the average variable cost what is the average variable cost is the ratio of the total variable cost to the output so let's take the first example output is 30 total variable cost is 500 so what is the average variable cost here it's 500 divided by 30 that's 16 .67 we have 6 .6 7 we have 6.

03:28 16 .67.

03:31 When output is 70 total fixed oh my bad when output is 70 total variable cost is thousand so the average variable cost becomes thousand by 70 that's 14 .09 so we have 14 .29 oh wow 14 .29 when output is 120 total variable cost is 1500 so the average variable cost becomes 1500 by 120 that's 12 .50 when output is 160 total variable cost is 2000 average variable cost becomes 2000 divided by 160 that's again 12 .50 so we have 12 .50 here again when output is 190 average variable cost is 2 ,500 so the average variable cost becomes 2 ,500 divided by 190 which comes to 13 .16 dollars so we have 13 .16 when output is 210 total variable cost is 3 ,000 average variable cost becomes 3 ,000 by 210 which comes to 14 .9 dollars 14 .29 my ad let's fix it 14 .9 i'm sorry it's just i don't have a lot of space here so i'm trying to quit it all in here when the output is 220 total is $3 ,500.

05:26 Average variable cost becomes 3 ,500 by 220, which comes to $15 .91.

05:32 We have $15 .91.

05:37 Let's calculate the average total cost.

05:40 Average total cost is the ratio of total cost to the output.

05:46 So when output is 30, total cost is $1 ,500 as you can see the table.

05:51 Average total cost becomes $50, which is $1 ,500...

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