Question

Use the following information to answer questions (a) through (c)

Output                                    Fixed cost                              Variable cost

    0                                               $50                                             $0

    5                                                                                                   20

   10                                                                                                 35

   15                                                                                                 55

   20                                                                                                 80

1. Calculate the average cost at an output of 20. (3 Pts)
2. At an output of 10, what is total cost? (3 Pts)
3. What is the marginal cost as output is increased from 5 to 10 units? (3 Pts)

Answer 1

In the above question Given Fixed cost = $50 for all output.

a) we know Average cost = Total cost / output

We also know total cost = Fixed cost + variable cost

So total cost at output 20 = 50 + 80 = $130

So Average Cost at output 20 = 130/20 = $2.6

b) At output 10 the total cost = $85

Because total cost = fixed cost + variable cost( at output 10) = 50 + 35 = $85

c) the Marginal Cost = TC_​​​10 - TC_{​​​​​5} = 85 - 70 = $15

Because

TOTAL COST at output 5 = 50(FC) + 20( VC) = $70

TOTAL COST at output 10 = 50( FC) + 35(VC) = $85