Question

Calculate total costs at 4 units of output. Do not put a dollar sign in your answer. (The 6 columns are Quantity, Total Fixed Cost, Total Variable Cost, Total Cost, Average Total Cost, and Marginal Cost. The Quantity and Total Variable Cost columns have been filled in along with the first row for Total Fixed Cost. Average Total Costs and Marginal Costs are not calculated at a quantity of 0.)

Quantity	Total Fixed Cost	Total Variable Cost	Total Cost	Average Total Cost	Marginal Cost
0	16	0		XXXXX	XXXXX
1		25
2		40
3		50
4		60
5		85

Calculate average total costs at 2 units of output.

Calculate average total cost at 5 units of output.

Calculate marginal cost at 4 units of output (moving from 3 units to 4 units).

Can you tell if this is the short run or long run? Explain.

Can you tell at which level of output profits will be maximized? Explain.

Answer 1

Total cost = Total fixed cost + Total variable cost

Average total cost = Total cost / quantity

Marginal cost = Change in Total cost/Change in quantity

Quantity	Total Fixed Cost	Total Variable Cost	Total Cost	Average Total Cost	Marginal Cost
0	16	0
1	16	25	41	41	41
2	16	40	56	28	15
3	16	50	66	22	10
4	16	60	76	19	10
5	16	85	101	20.2	25

Avg total cost for 2 units = 28

Avg total cost for 5 units = 20.2

Marginal cost for 4 units of output = 10

This is a short run as in long run there are no fixed costs. The firm cannot change its fixed cost in the short run where as in the long run there are no fixed costs

Profit will be maximum when ATC is the lowest, from table we see ATC is lowest at 4 units of output.