Being the diligent student that you are, your mind would have already been ingrained with the components of economic costs.

In this blog post, I am going to be teaching you how to solve each one of them by going through these examples

__Question 1__Given that accompanying cost schedule of a firm producing oranges

Find the total cost, average total cost, average fixed cost of producing 4, 9, 13, 16 oranges

**Answer**

Before I continue, note that all figure in this first question is in dollars.

Ok, let's solve for the total cost(TC) of producing each 4,9,13,16

Recalled that

**$$TC=TVC+TFC$$**

When producing:

**4 oranges**

$TC=20+25$

$=45$

**9 oranges**

$TC=20+50$

$=70$

**13 oranges**

$TC=20+ $75

$=95$

**At**

**16 oranges**

$TC=20+100$

$=120$

Now, let's solve for the average total cost(ATC)

Recall that

**ATC=$\frac{TC}{OUTPUT}$**

When producing:

**4 oranges**

ATC=$\frac{45}{4}=1.25$

**9 oranges**

ATC=$\frac{70}{9}=7.8$

**13 oranges**

ATC=$\frac{95}{13}=7.3$

**16 oranges**

ATC=$\frac{120}{16}=7.5$

Let's solve for the average fixed cost(AFC)

Recalled that:

**$$AFC=\frac{\text{fixed cost}}{\text{output}}$$**

When producing:

**4 oranges**

AFC=$\frac{20}{4}$

=$5$

**9 oranges**

AFC=$\frac{20}{9}$

=$2.2$

**13 oranges**

AFC=$\frac{20}{13}$

=$1.5$

**16 oranges**

AFC=$\frac{20}{16}$

=$1.25$

**Question**

__2__A firm's average variable cost(AVC) is €360, its average total cost(ATC) is $\$400$ and its total fixed cost(TFC) is $\$4000$, find its output?

**Answer**

Recalled that,

**ATC=AVC+AFC**

$\$400=\$360+AFC$

*collect like term*

$\$400-\$360=AFC$

$\$40=AFC$

$AFC=\$40$

Now, let's solve for the output

Recalled:

$$AFC=\frac{\text{fixed costs}}{\text{output}}$$

€40= $\frac{\$4000}{\text{output}}$

**Cross multiply**$\$40\times \text{output}=\$4000$

*Divide both side by €40*$\frac{\$40\times \text{output}}{40}=\frac{\$4000}{\$40}$

$\text{output}=\$100$

**Question 3**A firm marginal cost is \(\$60\), its average total cost is \(\$100\), and its output is 1600 units. find the total cost of producing the 1601 units.

**Answer**

Recalled that

**$$ATC=\frac{TC}{output}$$**

$\$100=\frac{TC}{1600}$

*Cross multiply*$TC=\$100\times 1600$

$TC=\$160000$

To find the total cost of the 1601 unit

We add MC(cost of producing one more unit) to the total cost

So

TC of 1601 units=$\$160000+\$60$

$=\$160060$

*Related post*

**Question 4**A firm's average variable cost and the average total cost are $\$225$ and $\$240$ respectively, and its output is 150 units. Find its total fixed cost.

**Answer**

First of all, Let's solve for the average fixed cost(AFC)

Recalled:

$ATC=AFC+AVC$

Ok, let make AFC the subject of the formula

**Collect like term**

$AFC=ATC-AVC$

$AFC=\$240-\$225$

**$=\$15$**

Also, remember that

**AFC=$\frac{TFC}{output}$**

€15=$\frac{TFC}{150}$

*cross multiply*TFC=$\$15\times 150=\$750$

**Question 5**A firm's average total cost is $\$160$, its fixed cost is $\$2000$, and its output is 200 units, find its average variable cost.

**Answer**

Recalled that

ATC=AVC+AFC

But we need to find the value of AFC,

$AFC=\frac{\text{fixed cost}}{\text{output}}$

$AFC=\frac{\$2000}{200}$

$=\$10$

Now, let's solve for AVC

$\$160=AVC+\$10$

collect like terms

$\$160-\$10=AVC$

$\$150=AVC$

$AVC=\$150$

I hope with this, you can now calculate any question on the components of economic costs. Please, if you have any questions, suggestions, feel free to tell me in the comment box.

## Post a Comment

## Post a Comment