# MG 640 – Total Cost (TC), Average variable cost

Subject: General Questions / General General Questions
Question
1. Complete Table below for

a) Total Cost (TC)

b) Average variable cost (AVC)

c) Fixed Cost for producing 20 units of output

Q FC VC TC AVC

0 100 0

10 100 100 200

15 100 125 325

20 150

25 100 175 175

30 100 200 300

40 100 225 325

2. Use Table above and answer the following questions

A. What is the marginal cost for producing the 10th unit?

a. 350 c. 50

b. 0 d. None of the above

B. What is the total cost of producing 20 units of output

a. 100 c. 150

b. 200 d. 300

C. What is the average variable cost of producing 10 units of output?

a. 10 c. 100

b. 25 d. 20 e. None of the above

D. What is the average total cost of producing 10 units of output?

a. 10 c. 100

b. 25 d. 20 e. None of the above

3. The table below summarizes the short-run production function for your firm. Your product sells for \$10 per unit, labor costs \$5 per unit, and rental price of capital is \$5 per unit.

Complete the following table, and then answer the accompanying questions.

K L Q MPL APL MPK VMPL

10 1 0

10 2 5

10 3 10

a. Which inputs are fixed inputs? …………………………………….

b. Which are the variable inputs? …………………………………….

c. How much are your fixed costs? ………………………………………

d. What is the variable cost of producing 5 units of output?

……………………………………………………………………………………………………

4. Suppose XYZ company leases an equipment form MTA for \$10,000 for one week. The MTA lease is returnable, but only 7,000 is refundable within 5 days of the date of the lease.

a. What are XYZ’s fixed costs?……………………………………………………………………….

b. What is XYZ’s sunk cost? ……………………………………………………….

c. Suppose XYZ manager obtains the lease but then decides against operating the business. If another similar firm offers the manager \$8,000 for the lease, should the manager accept the offer? Explain