Share
Explore BrainMass

Cost Estimation

A firm has total fixed costs of $60 and average variable costs as indicated in the table below.

Total Output Average Variable Cost

0 $0

1 45.00

2 42.50

3 40.00

4 37.50

5 37.00

6 37.50

7 38.57

8 40.63

9 43.33

10 46.50

a) Calculate AFC, ATC, MC, and TC.

b) At a product price of $56, will this firm produce in the short run? Why or why not? If it is preferable to produce, what will be the profit-maximizing output? What economic profit will the firm realize at the profit-maximizing?

c) How are your answers of the question b) changed if the price changed to $41?

Solution Preview

Please refer attached file for better clarity of table.

Q AVC TVC=AVC*Q FC TC=FC+TVC AFC=FC/Q ATC=TC/Q MC*
0 0.00 0.00 60.00 60.00
1 45.00 45.00 60.00 105.00 60.00 105.00 45.00
2 42.50 85.00 60.00 145.00 30.00 72.50 40.00
3 40.00 120.00 60.00 180.00 20.00 60.00 35.00
4 37.50 150.00 60.00 210.00 15.00 52.50 30.00
5 37.00 ...

Solution Summary

The solution describes the steps to calculate AFC, ATC, MC, and TC. It also calculates economic profits at the given market price levels.

$2.19