Question

1. Isaiah runs a bakery and has estimated his cost data in an excel spreadsheet. While looking at his spreadsheet on his phone, he accidently deleted some of the data with a few accidental swipes.

His cost table is given below, with five spaces where he is missing information identified as A, B, C, D and E. All numbers are in dollars.

Output	AFC	AVC	ATC	MC
10	120	100	220	--
20	A	B	150	80
30	40	90	130	90
40	30	C	D	130
50	24	108	132	E

The marginal cost figures have been calculated based on the discrete change from one row to the next. For example, 80 is the MC calculated going from Q=10 to Q=20.

Your task 3: Find all the missing data. But very importantly, clearly present the maths you are using and the definitions you are using to relate the various cost curve concepts.

Your task 4: Sketch a general average total cost curve, an average variable cost, and a marginal cost curve all on the same diagram.

You do not need to include numbers or make it exactly to scale.

Make sure however that the curves have their usual shape, and that your diagram shows the correct relationships between the curves.

Answer 1

Formulas Used:

ATC= TC/Q, AVC=VC/Q, AFC=FC/Q, FC=AFC*Q

ATC=AFC+AVC, AFC=ATC-AVC, AVC=ATC-AFC

MC = Change in TC/Change in Output

Change in TC = TCn-TCn-1

Change in Output= Qn-Qn-1

MCn = (TCn-TCn-1)/(Qn-Qn-1)

MCn*(Qn-Qn-1) + TCn-1 = TCn

The marginal cost is rising and intersects the average cost and average variable cost curves at its minimum. The fixed costs remain fixed throughout which is why the average fixed cost keeps falling.