Theory question 102
Theory of Costs and RevenueSection A (answer one question only from this section)
Cost schedule of a Firm
Output | TFC (N) | TVC (N) | TC (N) | AVC (N) | ATC (N) | MC (N)
0 | 100 | 0 | 100 | 0 | 100 | —
1 | 100 | 40 | 140 | ? | ? | ?
2 | 100 | 64 | 164 | ? | ? | ?
3 | 100 | 80 | 180 | ? | ? | ?
4 | 100 | 88 | 188 | ? | ? | ?
5 | 100 | 96 | 196 | ? | ? | ?
From the cost schedule above, calculate the Average Variable Cost (AVC), Average Total Cost (ATC) and Marginal Cost (MC) of the firm. Show your workings clearly.
Show the model answer
AVC = TVC ÷ output; ATC = TC ÷ output; MC = change in TC
Output 1: AVC = 40/1 = N40; ATC = 140/1 = N140; MC = 140 − 100 = N40
Output 2: AVC = 64/2 = N32; ATC = 164/2 = N82; MC = 164 − 140 = N24
Output 3: AVC = 80/3 = N26.67; ATC = 180/3 = N60; MC = 180 − 164 = N16
Output 4: AVC = 88/4 = N22; ATC = 188/4 = N47; MC = 188 − 180 = N8
Output 5: AVC = 96/5 = N19.20; ATC = 196/5 = N39.20; MC = 196 − 188 = N8
Show each formula, then each division.