a. Fill in the blanks in the table below.
Units of Output | Fixed Cost | Variable Cost | Total Cost | Marginal Cost | Average Fixed Cost | Average Variable Cost | Average Total Cost |
0 | 100 | ||||||
1 | 125 | ||||||
2 | 145 | ||||||
3 | 157 | ||||||
4 | 177 | ||||||
5 | 202 | ||||||
6 | 236 | ||||||
7 | 270 | ||||||
8 | 326 | ||||||
9 | 398 | ||||||
10 | 490 |
b. Draw a graph that shows marginal cost, average variable cost, and average total cost, with cost on the vertical axis and quantity on the horizontal axis.
a. The missing values from the table are given below:
Units of Output | Fixed Cost | Variable Cost (=TC-100) | Total Cost | Marginal Cost | Average Fixed Cost (=FC/Units of output) | Average Variable Cost (=VC/Units of output) | Average Total Cost (=TC/Units of Output) |
0 | 100 | 0 | 100 | - | - | - | |
1 | 100 | 25 | 125 | 25 (= 125-100) | 100 | 25 | 125 |
2 | 100 | 45 | 145 | 20 ( = 145-125) | 50 | 22.5 | 72.5 |
3 | 100 | 57 | 157 | 12 ( = 157-145) | 33.33 | 19 | 52.33333333 |
4 | 100 | 77 | 177 | 20( = 177-157) | 25 | 19.25 | 44.25 |
5 | 100 | 102 | 202 | 25 ( = 202-177) | 20 | 20.4 | 40.4 |
6 | 100 | 136 | 236 | 34 ( = 236-202) | 16.667 | 22.66666667 | 39.33333333 |
7 | 100 | 170 | 270 | 34 ( = 270-236) | 14.28571429 | 24.28571429 | 38.57142857 |
8 | 100 | 226 | 326 | 56 ( = 326-270) | 12.5 | 28.25 | 40.75 |
9 | 100 | 298 | 398 | 72 ( = 398-326) | 11.11111111 | 33.11111111 | 44.22222222 |
10 | 100 | 390 | 490 | 92 ( = 490-398) | 10 | 39 | 49 |
b. The marginal cost, the average variable cost, and the average total cost curves are as follows:
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Jared runs a personal training studio and earned $5,000 last month. His fixed costs are $4,000 and variable costs are $3,500. Should Jared shut down his business immediately?
A) Yes, because he is clearly losing money
B) No, because he is making money
C) No, because $5,000 covers his fixed costs
D) Yes, because $5,000 cannot cover his fixed costs
E) No, because $5,000 covers his variable costs
JC pizzeria has a year remaining on an unbreakable lease on its building, requiring a payment of $20,000 a year. If JC operates over the next year, it estimates that its revenues will be $200,000 and that its expenses, in addition to the lease, will be $190,000. Which of the following statements is true?
A
JC should shut down, since it will incur a loss of $20,000.
B
JC should shut down to break
even.
C
JC should operate, since its loss is less than its fixed cost.
D
JC should operate, since it will earn a profit of $10,000.
E
JC will break even, whether it operates or shuts down.
Shelby is an entrepreneur who has decided to open a small advertising firm. She rents office space at a cost of $25,000 per year, she has employed an assistant at a salary of $30,000 per year, and she incurs annual utility and office supply expenses of
$20,000. Her best alternative is to work elsewhere and to earn a salary of $50,000 per year. How much annual revenue must her firm receive so that Shelby earns zero economic profit?
A
$50,000
B
$75,000
C
$100,000
D
$125,000
E