Question

Complete the table below, which represents the production costs for a typical firm. TP is total product (which is also Q). Please note that for the first row (where TP = 0), you cannot calculate the AFC, the AVC, the ATC and the MC, since there are 0 units being produced. However, you are expected to calculate the TC for the first row (where TP =0) and you are also expected to fill in all the other missing numbers in this table. (Round numbers to the nearest tenth.)

Please show your calculations for at least one of the rows.

TP	TFC	TVC	TC	AFC	AVC	ATC	MC
0	$180	$ 0		-------	-------	-------	-------
1		27.5					$27.5
2		46.8			23.4
3		63.3
4		82.5		45.0
5		106.7	286.7
6		139.7
7		181				51.6

At what level of output do diminishing returns set in? How do you know?

Answer 1

TFC = 180

TC = TFC + TVC

AFC = TFC/Q

AVC = TVC/Q

ATC = TC/Q

MC = Change in TC /Change in Q

TP	TFC	TVC	TC	AFC	AVC	ATC	MC
0	180	0	180	-------	-------	-------	-------
1	180	27.5	207.5	180	27.5	207.5	$27.5
2	180	46.8	226.8	90	23.4	113.4	19.3
3	180	63.3	243.3	60	21.1	81.1	16.5
4	180	82.5	262.5	45	20.6	65.6	19.2
5	180	106.7	286.7	36	21.3	57.3	24.2
6	180	139.7	319.7	30	23.3	53.3	33.0
7	180	181	361	25.7	25.9	51.6	41.3

At output level of 4th unit MC starts increasing, so diminishing returns sets in