Question

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 100 + 10Q. What is the;

a. fixed cost (FC),

b. variable cost (VC),

c. marginal cost (MC),

d. average fixed cost (AFC),

e. average variable cost (AVC),

f. average total cost (ATC)?

Answer 1

a) 100

(Fixed cost is the cost which doesn't vary with output. It is not attached to Q)

b) 10 Q

( lts the cost which varies with output. So its the value attached to Q)

c) 10

( Marginal cost the derivative of the Total cost function

MC = d/d Q ( 100+10Q)

= 10)

d) 100/ Q

(Average fixed cost is the fixed cost per unit of output. It can be found be dividing the total cost with output.)

e) 10

(Variable cost is found by dividing the total variable cost with output 10Q/ Q =10)

f) (100+10Q)/ Q

( lts the total cost per unit of output. It can be obtained by dividing the total cost with output.

ATC = TC/ Q = (100+10Q)/Q