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A) Complete the following table of short-run fixed costs
A) Complete the following table of short-run fixed costs. (Round to two decimal places.)
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B) As output increases, total variable cost and average variable cost .
(a) increases; decreases and then increases
(b) decreases; decreases
(c) does not change; increases
(d) decreases and then increases; decreases and then increases
Expert Solution
(A) Average fixed cost = total fixed cost / quantity of output. Applying this formula, the completed table is as follows:
| Output | Total Fixed Cost | Average Fixed Cost |
|---|---|---|
| 1 | 2000 | 2000 |
| 2 | 2000 | 1000 |
| 3 | 2000 | 667 |
| 4 | 2000 | 500 |
| 5 | 2000 | 400 |
(B) The answer is A).
Variable cost is the expenses that vary with the level of production, such as direct material cost and labor cost. As long as production requires variable inputs, then total variable cost will always increase as more is produced. However, average variable cost can first decline and then increase. The decline occurs before diminishing marginal returns sets in. After that, marginal cost will start to increase and so will average variable cost.
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