Question

Ron is paying each worker $25 a day (minute) he rents the capital for $20 a day. Create a table to show the average fixed cost (AFC), the average variable cost (AVC), the average total cost (ATC) and the cost (MC).

TP	AVC	AFC	ATC	MC
0
5
17
23
27
29

Answer 1

Working notes:

(i) Total fixed cost (TFC) = Cost of capital = $20

(ii) Average fixed cost (AFC) = TFC / TP = 20 / TP

(iii) Average variable cost (AVC) = Daily labor cost / TP = 25 / TP

(iv) Average total cost (ATC) = AFC + AVC

(v) Total cost (TC) = ATC x TP

(vi) Marginal cost (MC) = Change in TC / Change in TP

Therefore:

TP	AFC	AVC	ATC	TC	MC
0		0		20
5	4.00	5.00	9.00	45	5
17	1.18	1.47	2.65	45	0
23	0.87	1.09	1.96	45	0
27	0.74	0.93	1.67	45	0
29	0.69	0.86	1.55	45	0