Q4Managerial Economics & Financial Accounting

Question

Given below is the cost schedule of a firm. Its Average Fixed cost is Rs. 20 when it produces 3 units | Output (Q) units | 1 | 2 | 3 | |---|---|---|---| | Average variable cost (AVC) (Rs.) | 30 | 28 | 32 | Calculate its Marginal cost and Average total cost at each given level of output.

Answer 1

Step 1: Find Total Fixed Cost (TFC) Given: Average Fixed Cost (AFC) is Rs. 20 when Output (Q) = 3. $T F C = A F C \times Q = 20 \times 3 = 60 Rs.$ (TFC remains 60 for all levels of output).

Step 2: Calculate for each Output Level

At Q = 1: - Given AVC = 30 $⟹$ TVC = $30 \times 1 = 30$ - Total Cost (TC) = TFC + TVC = $60 + 30 = 90$ - Average Total Cost (ATC) = TC / Q = $90/1 =$ 30 Rs. (Wait, $90/1 = 90$ . ATC=90) - Marginal Cost (MC) = TVC $_{1}$ - TVC $_{0}$ = $30 - 0 =$ 30 Rs.

At Q = 2: - Given AVC = 28 $⟹$ TVC = $28 \times 2 = 56$ - TC = $60 + 56 = 116$ - Average Total Cost (ATC) = TC / Q = $116/2 =$ 58 Rs. - Marginal Cost (MC) = TVC $_{2}$ - TVC $_{1}$ = $56 - 30 =$ 26 Rs.

At Q = 3: - Given AVC = 32 $⟹$ TVC = $32 \times 3 = 96$ - TC = $60 + 96 = 156$ - Average Total Cost (ATC) = TC / Q = $156/3 =$ 52 Rs. - Marginal Cost (MC) = TVC $_{3}$ - TVC $_{2}$ = $96 - 56 =$ 40 Rs.

Q4Managerial Economics & Financial Accounting

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