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Homework answers / question archive / Consider the following firm
Consider the following firm. In the short run, the fixed cost is $7210.
a. How much is the minimum of the AVC?
b. How much is the firm's technologically optimum output?
| Q | VC |
| 0 | |
| 5 | 100 |
| 10 | 1500 |
| 15 | 2500 |
| 20 | 3150 |
| 25 | 39090 |
| 30 | 4550 |
| 35 | 6050 |
| 40 | 7550 |
| 45 | 9550 |
| 50 | 12250 |
a) We first compute AVC, which is calculated as follows:
| Q | VC | AVC |
| 0 | ||
| 5 | 100 | 20 |
| 10 | 1500 | 150 |
| 15 | 2500 | 167 |
| 20 | 3150 | 158 |
| 25 | 39090 | 1564 |
| 30 | 4550 | 152 |
| 35 | 6050 | 173 |
| 40 | 7550 | 189 |
| 45 | 9550 | 212 |
| 50 | 12250 | 245 |
AVC is minimized when Q is equal to 5.
b) Optimal output is when average total cost is minimized, which is calculated below:
| Q | VC | AVC | AFC | ATC |
| 0 | ||||
| 5 | 100 | 20 | 1442 | 1462 |
| 10 | 1500 | 150 | 721 | 871 |
| 15 | 2500 | 167 | 481 | 647 |
| 20 | 3150 | 158 | 361 | 518 |
| 25 | 39090 | 1564 | 288 | 1852 |
| 30 | 4550 | 152 | 240 | 392 |
| 35 | 6050 | 173 | 206 | 379 |
| 40 | 7550 | 189 | 180 | 369 |
| 45 | 9550 | 212 | 160 | 372 |
| 50 | 12250 | 245 | 144 | 389 |
Average total cost is minimized when Q = 40. So the technically optimal output is 40.
Average variable cost (AVC) is the total variable cost divided by the quantity of output. Average variable cost plus average fixed cost is equal to average total cost.
