Question

# A firm has the following short run total costs, where Q is output and TC is...

A firm has the following short run total costs, where Q is output and TC is total cost:

 Q TC 0 \$ 200 1 210 2 230 3 260 4 300 5 350 6 410 7 480 8 560 9 650 10 750 11 860

What is total fixed cost equal to?

What is average total cost at Q = 5?

What is average variable cost at Q = 7?

What is marginal cost at Q = 9?

At Q=9, is the firm operating under increasing or decreasing returns? Why?

Total fixed cost is the cost which is incurred irrespective of whether there has been production or not.

Total fixed cost = \$200 which is at Q=0

At Q=5 total cost is \$350 hence the average cost = 350 / 5 = \$70

At any level the fixed cost remains the same which is \$200

At Q=7 total fixed cost is \$200 hence the total variable cost = \$480 - \$200 = \$280 and the average variable cost will be \$280 / 7 = \$40

Marginal cost is the additional cost of producing an additional unit of product.

Total cost at Q=8 is \$560 and at Q=9 is \$650 hence the marginal cost is \$650 - \$560 = \$90 and the per unit marginal cost is \$90 / 9 = \$10

Marginal cost at Q=8 is \$560 - \$480 = \$80 and as calculated above Marginal cost at Q=9 is \$90. Hence, the firm is operating under increasing returns.

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