Chapter 1. Chapter 7b

Step 1

Solved Problems
true
true
You must read each slide, and complete any questions on the slide, in sequence.

Question

Suppose that a company has a fixed cost to produce of $50. Its variable cost is $25 per worker. The following table summarizes the firm’s production and costs.

Fill in the column for fixed cost. Round the answers to two decimal places.

Workers Total Product Fixed Cost
0 0 50
1 12 50
2 25 fwIPnBkWdu4=
3 39 fwIPnBkWdu4=
4 48 fwIPnBkWdu4=
5 50 fwIPnBkWdu4=
6 51 fwIPnBkWdu4=
Table
3
Fixed cost by definition does not change. It is a constant $50 for all output levels.

Step 2

Question

Suppose that a company has a fixed cost to produce of $50. Its variable cost is $25 per worker. The following table summarizes the firm’s production and costs.

Fill in the column for variable cost.

Workers Total Product Fixed Cost Variable Cost
0 0 50 0
1 12 50 25
2 25 50 fwIPnBkWdu4=
3 39 50 XqPzZf5H/p4=
4 48 50 b0g0iQ1whKk=
5 50 50 ulD80gzJB74=
6 51 50 IJaWHrT39D4=
Table
3
Here, variable cost corresponding to each level of output is $25 times the number of workers.

Step 3

Question

Fill in the column for total cost.

Workers Total Product Fixed Cost Variable Cost Total Cost
0 0 50 0 50
1 12 50 25 75
2 25 50 50 b0g0iQ1whKk=
3 39 50 75 ulD80gzJB74=
4 48 50 100 IJaWHrT39D4=
5 50 50 125 vLidXE0j5Uw=
6 51 50 150 ygJZKffxRWs=
Table
3
total cost corresponding to each level of output is fixed cost plus variable cost. Add the two numbers together.

Step 4

Question

Suppose that a company has a fixed cost to produce of $50. Its variable cost is $25 per worker. The following table summarizes the firm’s production and costs.

Fill in the column for average fixed cost. Round to two decimal places.

Workers Total Product Fixed Cost Variable Cost Total Cost Average Fixed Cost
0 0 50 0 50
1 12 50 25 75 4.17
2 25 50 50 100 bLxrQvMzp9I=
3 39 50 75 125 9ySU/ufjZtc=
4 48 50 100 150 /J/I/00zEY4=
5 50 50 125 175 AsAmbyYNzho=
6 51 50 150 200 7FtUcQlBBT4=
Table
3
Average fixed cost corresponding to each level of output is fixed cost divided by the quantity produced. Divide the two numbers. AFC declines because fixed costs are spread out over more units.

Step 5

Question

Suppose that a company has a fixed cost to produce of $50. Its variable cost is $25 per worker. The following table summarizes the firm’s production and costs.

Fill in the column for average variable cost.

Workers Total Product Fixed Cost Variable Cost Total Cost Average Fixed Cost Average Variable Cost
0 0 50 0 50
1 12 50 25 75 4.17 2.08
2 25 50 50 100 2.00 bLxrQvMzp9I=
3 39 50 75 125 1.28 BsL96uH7+/c=
4 48 50 100 150 1.04 rP/7zDLKk+U=
5 50 50 125 175 1.00 LF/ePdhO99Q=
6 51 50 150 200 0.98 Wlq+tLkCxHk=
Table
3
Average variable cost is variable cost divided by the quantity produced. AVC rises because of increasing marginal costs and falling marginal product.

Step 6

Question

Suppose that a company has a fixed cost to produce of $50. Its variable cost is $25 per worker. The following table summarizes the firm’s production and costs.

Fill in the column for average total cost.

Workers Total Product Fixed Cost Variable Cost Total Cost Average Fixed Cost Average Variable Cost Average Total Cost
0 0 50 0 50
1 12 50 25 75 4.17 2.08 6.25
2 25 50 50 100 2.00 2.00 ur21vf7E/9Q=
3 39 50 75 125 1.28 1.92 kAAEyY+vYmO5gFjpc5WxWQ==
4 48 50 100 150 1.04 2.08 sAXSGng8JpPkspx566X7qg==
5 50 50 125 175 1.00 2.50 W4ye7+xCOkk=
6 51 50 150 200 0.98 2.94 zO8ROIvMztM=
Table
3
Average total cost corresponding to each level of output can be calculated in two ways. First, total cost divided by the quantity produced. Or, you can add AFC plus AVC.

Step 7

Question

Suppose that a company has a fixed cost to produce of $50. Its variable cost is $25 per worker. The following table summarizes the firm’s production and costs.

Fill in the column for marginal cost.

Workers Total Product Fixed Cost Variable Cost Total Cost Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
0 0 50 0 50
1 12 50 25 75 4.17 2.08 6.25 2.08
2 25 50 50 100 2.00 2.00 4.00 BsL96uH7+/c=
3 39 50 75 125 1.28 1.92 3.21 fREFs0gnhHI=
4 48 50 100 150 1.04 2.80 3.13 uAGopdWXyKY=
5 50 50 125 175 1.00 2.50 3.50 v+fFLe8Ed6FVMPza
6 51 50 150 200 0.98 2.94 3.92 FzvPAU9x0+vUmRTx
Table
3
Marginal cost corresponding to each level of output equals change in costs divided by change in quantity or total product. First, calculate each change from row to row (change in variable cost (VC) and change in total product (TP), i.e. the marginal product), then divide (∆VC/∆TP). Alternatively, total cost (TC) can be considered in the place of variable cost so that marginal cost equals (∆TC/∆TP). Marginal cost falls, then rises, because of specialization followed by diminishing returns.