Short-Run Cost Puzzle
Total Product
Total Fixed Cost
Total Variable Cost
Total Cost
Average Fixed Cost
Average Variable Cost
Average Total Cost
Marginal Cost
0
?
0
?
40
1
2
115
20
30
3
35
48.33
25
4
32.50
5
8
33
6
255
42.50
Use the definitions for TFC, TVC, TC, AFC, AVC, ATC and SMC along with the data provided above to fill in the missing values. Use space below for worksheet.
? means infinitely large. Applicable relationships are:
SAC = AFC + AVC
? ? ?
STC TFC TVC
??? = ??? + ???
Q Q Q
DTVC DTC
SMC = ???? = ???
DQ DQ
Short-Run Cost Puzzle
| Total Product | Total Fixed Cost | Total Variable Cost | Total Cost | Average Fixed Cost | Average Variable Cost | Average Total Cost | Marginal Cost |
| 0 | ? | 0 | ? | ||||
| 40 | |||||||
| 1 | |||||||
| 2 | 115 | 20 | |||||
| 30 | |||||||
| 3 | 35 | 48.33 | |||||
| 25 | |||||||
| 4 | 32.50 | ||||||
| 5 | 8 | 33 | |||||
| 6 | 255 | 42.50 |
Use the definitions for TFC, TVC, TC, AFC, AVC, ATC and SMC along with the data provided above to fill in the missing values. Use space below for worksheet.
? means infinitely large. Applicable relationships are:
SAC = AFC + AVC
? ? ?
STC TFC TVC
??? = ??? + ???
Q Q Q
DTVC DTC
SMC = ???? = ???
DQ DQ
Related textbook solutions
Related questions
The spreadsheet below gives some of the production cost data. Add columns to show, respectively, average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and short-run marginal cost (SMC). Then, add columns to show, respectively, total revenue (TR), marginal revenue (MR), total profit, average profit, and profit margin.
Assume that the world market demand and supply curves for clay fire pots intersect at $190 per unit.
|
Q |
TC |
TFC |
TVC |
|
0 |
7,000 |
7,000 |
- |
|
100 |
14,000 |
7,000 |
7,000 |
|
200 |
23,000 |
7,000 |
16,000 |
|
300 |
32,000 |
7,000 |
25,000 |
|
400 |
43,000 |
7,000 |
36,000 |
|
500 |
52,000 |
7,000 |
45,000 |
|
600 |
74,000 |
7,000 |
67,000 |
|
700 |
97,000 |
7,000 |
90,000 |
|
800 |
111,000 |
7,000 |
104,000 |
|
900 |
132,000 |
7,000 |
125,000 |
|
1000 |
152,000 |
7,000 |
145,000 |
Redstone Clayworks Inc. is located in Sedona, Arizona, and manufactures clay fire pits for patios. They are one of about two dozen firms around the world that manufacture and sell clay fire pits for retailers such as Home Depot, Lowe's, Front Gate, and other upscale home product chains. There is virtually no product differentiation. A clay fire pit is a clay fire pit.
The spreadsheet below gives some of Redstone's production cost data.
Assume that the world market demand and supply curves for clay fire pots intersect at $190 per unit.
|
Q |
TC |
TFC |
TVC |
AFC |
AVC |
ATC |
SMC |
TR |
MR |
Profit |
Average |
Profit |
|
Profit |
Margin |
|||||||||||
|
0 |
7000 |
7000 |
NIL |
NIL |
NIL |
NIL |
NIL |
0 |
NIL |
-7000 |
NIL |
nil |
|
100 |
14000 |
7000 |
7000 |
70 |
70 |
140 |
70 |
19000 |
190 |
5000 |
50 |
26% |
|
200 |
23000 |
7000 |
16000 |
35 |
80 |
115 |
90 |
38000 |
190 |
15000 |
75 |
39% |
|
300 |
32000 |
7000 |
25000 |
23.33 |
83.33 |
106.67 |
90 |
57000 |
190 |
25000 |
83.33 |
44% |
|
400 |
43000 |
7000 |
36000 |
17.5 |
90 |
107.5 |
110 |
76000 |
190 |
33000 |
82.5 |
43% |
|
500 |
52000 |
7000 |
45000 |
14 |
90 |
104 |
90 |
95000 |
190 |
43000 |
86 |
45% |
|
600 |
74000 |
7000 |
67000 |
11.67 |
111.67 |
123.33 |
220 |
114000 |
190 |
40000 |
66.67 |
35% |
|
700 |
97000 |
7000 |
90000 |
10 |
128.57 |
138.57 |
230 |
133000 |
190 |
36000 |
51.43 |
27% |
|
800 |
111000 |
7000 |
104000 |
8.75 |
130 |
138.75 |
140 |
152000 |
190 |
41000 |
51.25 |
27% |
|
900 |
132000 |
7000 |
125000 |
7.78 |
138.89 |
146.67 |
210 |
171000 |
190 |
39000 |
43.33 |
23% |
|
1000 |
152000 |
7000 |
145000 |
7 |
145 |
152 |
200 |
190000 |
190 |
38000 |
38 |
20% |
AFC = total fixed cost/total output.
AVC = total variable cost/total output.
ATC = total cost/total output.
MC = change in total cost/change in output.
Total revenue = price * quantity. And given that the demand and supply intersect at $190, which implies that the equilibrium price is $190 because the point where the demand equals the supply determines the price.
MR = change in total revenue/change in output.
Profit = total revenue - total cost.
Average profit = total profit/total output.
Profit margin = total profit/total revenue*100 or (revenue - cost)/revenue*100.
Question:
What level of output should the manager of Redstone choose to produce? Explain your choice in 50-100 words.
