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Complete the following table using the information provided
Complete the following table using the information provided. Total Fixed cost Average Variable cost Average Total cost Product (RM) fixed cost (RM) variable cost (RM) (Units) (RM) (RM) Marginal cost (RM) 0 1 72 2 72 60 3 72 4 84 b) Is the firm operating in the short run or long run? Support your answer.
Expert Solution
Solution:- a.
| Q(TP) | FC(AFC×Q) | AFC | VC(AVC×Q) | AVC | TC(FC+VC) | MC |
| 0 | 144 | — | 0 | — | 144 | — |
| 1 | 144 | 144 | 72 | 72 | 216 | 72 |
| 2 | 144 | 72 | 120 | 60 | 264 | 48 |
| 3 | 144 | 48 | 216 | 72 | 360 | 96 |
| 4 | 144 | 36 | 336 | 84 | 480 | 120 |
Explanation:- a
- AFC ×Q = TFC , it is constant at each level of output.
- Variable cost = average variable cost (AVC ×Q)
- Total cost = fixed cost + variable cost
- MCn = TCn —TC n–1 ( MC at any level of output is TC at that level of output minus TC at the previous level of output.
b. As the firm incurs both fixed costs and variable costs in the production process, it means the firm is still operating under the short run. In the long run a firm incurs only variable costs in the production.
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