|
7. Average variable cost for April Showers:
To compute Average Variable Cost (AVC) for any level of output simply subtract the $10 fixed cost from Total Cost and divide the remaining by the associated output. Though the question can easily be answered without it, we've added AVC and MC columns to the table to the right.
- is greater than marginal cost at 2 units of output.
They are both equal to 15 at 2 units of output so this isn't correct.
- is less than average total cost at two units of output.
AVC must be less than Average Total Cost (ATC) at any level of output since ATC = AVC + Average Fixed Cost.
- is equal to 20 at four units of output.
As we can quickly see from the table to the right, at four units of output AVC = 50 ÷ 4 = 12.5
- is greater than marginal cost at 4 units of output
Quick computations show this not to be true since MC = 21 and AVC = 12.5
- is always decreasing between any two levels of output given to the right.
After the 2nd unit of output is produced AVC is increasing.
|
| Data For April Showers |
| Umbs |
TC |
MC |
AVC |
| 0 |
10 |
- |
- |
| 1 |
15 |
5 |
5 |
| 2 |
24 |
9 |
7 |
| 3 |
39 |
15 |
9.67 |
| 4 |
60 |
21 |
12.5 |
| 5 |
85 |
25 |
15 |
|
