(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
Now we are going to move into calculating the average costs - total, fixed, and variable.
(Description)
There are 3 new columns added to the right side of the previous table. Now the table consists of the following columns: Quantity of Cars, TC, Variable Cost (VC), Average variable cost (AVC), Average total cost (ATC), Average fixed cost (AFC).
The following text is written above the table:
Complete the table. For each level of output except zero, calculate the average variable cost (AVC), average total cost (ATC), and average fixed cost (AFC). Please round your answer to the nearest whole number.
(Speaker)
The process is similar for all three. We will start by calculating average variable cost. Average variable cost is defined as variable cost divided by output.
(Description)
The following text is written above the table:
Average Variable Cost equals (Variable Cost) divided by Quantity of Output.
(Speaker)
For the first car, this will be 40 thousand dollars divided by one, which equals 40 thousand dollars.
(Description)
A cell at the intersection of the second row and the column Average Variable Cost (AVC) is, equals 40 thousand dollars divided by 1 equals 40 thousand dollars. This cell is briefly highlighted.
(Speaker)
We started with the first car because the average variable cost is undefined for zero cars, as you cannot divide by zero cars.
(Description)
A cell at the intersection of the first row and the column Average Variable Cost (AVC) is, dashed.
(Speaker)
To find the average variable cost for two cars we simply divided the variable cost of 60 thousand dollars by 2 for an average variable cost of 30 thousand dollars.
(Description)
A cell at the intersection of the third row and the column Average Variable Cost (AVC) is, equals 60 thousand dollars divided by 2 equals 30 thousand dollars. This cell is briefly highlighted.
(Speaker)
We are going to do the remainder of the average variable costs.
(Description)
A cell at the intersection of the fourth row and the column Average Variable Cost (AVC) is, equals 70 thousand dollars divided by 3 equals 23 thousand 333 dollars.
A cell at the intersection of the fifth row and the column Average Variable Cost (AVC) is, equals 90 thousand dollars divided by 4 equals 22 thousand 500 dollars.
A cell at the intersection of the sixth row and the column Average Variable Cost (AVC) is, equals 120 thousand dollars divided by 5 equals 24 thousand dollars.
A cell at the intersection of the seventh row and the column Average Variable Cost (AVC) is, equals 160 thousand dollars divided by 6 equals 26 thousand 667 dollars.
A cell at the intersection of the eight row and the column Average Variable Cost (AVC) is, equals 220 thousand dollars divided by 7 equals 31 thousand 429 dollars.
A cell at the intersection of the ninth row and the column Average Variable Cost (AVC) is, equals 300 thousand dollars divided by 8 equals 37 thousand 500 dollars.
A cell at the intersection of the tenth row and the column Average Variable Cost (AVC) is, equals 420 thousand dollars divided by 9 equals 46 thousand 667 dollars.
A cell at the intersection of the eleventh row and the column Average Variable Cost (AVC) is, equals 600 thousand dollars divided by 10 equals 60 thousand dollars.
These cells are briefly highlighted.
(Speaker)
You should make note that average variable costs initial decline at low levels of output but increase as output increases.
Next, we are going to calculate average total cost. The process is identical to average variable cost. But this time we're going to be using total costs.
(Description)
The following text is written above the table:
Average Total Cost equals (Variable Cost) divided by Quantity of Output.
A cell at the intersection of the first row and the column Average Total Cost (AVC) is, dashed.
A cell at the intersection of the second row and the column Average Total Cost (AVC) is, equals 540 thousand dollars divided by 1 equals 540 thousand dollars.
A cell at the intersection of the third row and the column Average Total Cost (AVC) is, equals 560 thousand dollars divided by 2 equals 280 thousand dollars.
A cell at the intersection of the fourth row and the column Average Total Cost (AVC) is, equals 570 thousand dollars divided by 3 equals 190 thousand dollars.
A cell at the intersection of the fifth row and the column Average Total Cost (AVC) is, equals 590 thousand dollars divided by 4 equals 147 thousand 500 dollars.
A cell at the intersection of the sixth row and the column Average Total Cost (AVC) is, equals 620 thousand dollars divided by 5 equals 124 thousand dollars.
A cell at the intersection of the seventh row and the column Average Total Cost (AVC) is, equals 660 thousand dollars divided by 6 equals 110 thousand dollars.
A cell at the intersection of the eight row and the column Average Total Cost (AVC) is, equals 720 thousand dollars divided by 7 equals 102 thousand 857 dollars.
A cell at the intersection of the ninth row and the column Average Total Cost (AVC) is, equals 800 thousand dollars divided by 8 equals 100 thousand dollars.
A cell at the intersection of the tenth row and the column Average Total Cost (AVC) is, equals 920 thousand dollars divided by 9 equals 102 thousand 22 dollars.
A cell at the intersection of the eleventh row and the column Average Total Cost (AVC) is, equals 1 million 100 thousand dollars divided by 10 equals 110 thousand dollars.
These cells are briefly highlighted.
(Speaker)
You can see in the column for Average Total Cost we are simply dividing total cost by quantity. Again, this is identical to the process for average variable. You should note that the minimum of average total cost occurs when the firm produces eight cars.
Finally, we're going to calculate average fixed cost. Average fixed cost is slightly different then ATC and AVC. Since fixed costs are constant for all levels of production we're are going to simply take the fixed cost of 500 thousand dollars and divide by each level of output.
(Description)
The following text is written above the table:
Average Fixed Cost equals (Fixed Cost) divided by Quantity of Output
Note: Fixed costs are constant for all levels of output.
A cell at the intersection of the first row and the column Average Fixed Cost (AFC) is, dashed.
A cell at the intersection of the second row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 1 equals 500 thousand dollars.
A cell at the intersection of the third row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 2 equals 250 thousand dollars.
A cell at the intersection of the fourth row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 3 equals 166 thousand 667 dollars.
A cell at the intersection of the fifth row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 4 equals 125 thousand 500 dollars.
A cell at the intersection of the sixth row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 5 equals 100 thousand dollars.
A cell at the intersection of the seventh row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 6 equals 83 thousand 333 dollars.
A cell at the intersection of the eight row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 7 equals 71 thousand 429 dollars.
A cell at the intersection of the ninth row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 8 equals 62 thousand 500 dollars.
A cell at the intersection of the tenth row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 9 equals 55 thousand 556 dollars.
A cell at the intersection of the eleventh row and the column Average Fixed Cost (AFC) is, equals 500 thousand dollars divided by 10 equals 50 thousand dollars.
These cells are briefly highlighted.
(Speaker)
You should remember that average fixed costs are always decreasing over output. And you should be able to see in the table that average fixed costs plus average variable costs equal average total cost.