Question

Table 2.a. shows an LED light bulb manufacturer’s total cost of producing LED light bulbs.

Table 2.a.

Cases of LED light bulbs produced in an hour	Total Cost
0	$4,500
10	$4,900
20	$5,100
30	$5,300
40	$5,400
50	$5,700
60	$6,700
70	$7,900
80	$9,700
90	$11,800

1. What is this manufacturer’s fixed cost? Explain why. (1 point)

2. Assuming that you only know the Total Costs (TC) (as is shown in the Table 2.a. above) explain how you would calculate each of the following:

a. Variable Cost (VC) (1 point);

b. Average Variable Cost (AVC (1 point));

c. Average Total Cost (ATC) (1 point);

d. Average Fixed Cost (AFC) (1 point) ; and,

e. Marginal Costs (of a single case). (1 point)

Answer 1

Cases of LED light bulbs produced in an hour, Q	Total Output, TC	Fixed Cost, FC (a)	Variable Cost, VC=TC-FC (b)	ATC= TC/Q (c)	AFC=FC/Q (d)	(e)
0	4500	4500	0
10	4900	4500	400	490.00	450.00	40.00
20	5100	4500	600	255.00	225.00	20.00
30	5300	4500	800	176.67	150.00	20.00
40	5400	4500	900	135.00	112.50	10.00
50	5700	4500	1200	114.00	90.00	30.00
60	6700	4500	2200	111.67	75.00	100.00
70	7900	4500	3400	112.86	64.29	120.00
80	9700	4500	5200	121.25	56.25	180.00
90	11800	4500	7300	131.11	50.00	210.00

a)

Fixed Cost is independent of output level. So, Fixed Cost is equal to total cost at zero output.

FC= TC at zero output=$4500

b)

Variable Cost=VC=TC-FC

(Please refer above table for values)

c)

Average Total Cost=ATC=TC/Q

(Please refer above table for values)

d)

Average Fixed Cost=AFC=FC/Q

(Please refer above table for values)

e)

(Please refer above table for values)