Question

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?

Answer 1

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.