Calculating the missing values
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Economists at General Industries have been examining operating costs at one of its parts manufacturing plants in an effort to determine whether the plant is being operated efficiently. From weekly cost records, the economists developed the following cost-output information concerning the operation of the plant:
a. AVC (average variable cost) at an output of 2,000 units per week is $7.50.
b. At an output level of 5,000 units per week, AFC (average fixed cost) is $3.
c. TC (total cost) increases by $5,000 when output is increased from 2,000 to 3,000 units per week.
d. TVC (total variable cost) at an output level of 4,000 units per week is $23,000.
e. AVC (average variable cost) decreases by $0.75 per unit when output is increased from 4,000 to 5,000 units per week.
f. AFC plus AVC for 8,000 units per week is $7.50 per unit.
g. ATC (average total cost) decreases by $0.50 per unit when output is decreased from 8,000 to 7,000 units per week.
h. TVC increases by $3,000 when output is increased from 5,000 to 6,000 units per week.
i. TC decreases by $7,000 when output is decreased from 2,000 to 1,000 units per week.
j. MC (marginal cost) is $16 per unit when output is increased from 8,000 to 9,000 units per week.
Given the preceding information, complete the following cost schedule for the plant. (Hint: Proceed sequentially through the list, filing in all the related entries before proceeding to the next item of information in the list.)
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Solution Summary
Solution calculates the missing values of cost components in the given case.
Solution Preview
Please refer attached file for tables.
AFC for 5000 units is 3. So, TFC=3*5000=$15000. It will be same for all levels of output.
AVC for 2000 units is 7.5, TVC=2000*7.5=15000. ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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