ADM 1300 : 1104_PS2_temp-1.xls
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24 Mar 2013
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Cost Formulas
Total Revenue = Price x Output
Total Fixed Costs = Sum of all fixed Costs
Total Variable Costs = Sum of all Variable Costs
Total Costs = TFC +TVC
Ave Fixed Costs(AFC) = TFC/Output
Ave Variable Costs (AVC) = TVC/Output
Ave Total Costs (ATC) = TC/Output
Marginal Cost = ^TC/^Output or ^TVC/^Output
Short Run Rules
Price > ATC, produce make profit
ATC > Price > AVC, produce minimize loss
AVC > Price, donât produce limit loss to fixed costs
Long Run Rules
Price > ATC, produce MR=MC
Price < ATC. Stop and sell fixed assets
1. Complete the Table
2. What actions should the firm take in order to maximize profits or minimize loss in each case, and why?
Case # | T. Revenue. | T. Cost | T.V.C. | T.F.C. | Profit | Price | A.T.C. | A.V.C. | A.F.C. | M.C. | Output | Action |
1 | $ 4.00 | $ 3.00 | $ 2.00 | $ 4.00 | 600 | |||||||
2 | $ 8,000.00 | Minimum | 200 | |||||||||
3 | $ 8,000.00 | $ 9,000.00 | $ 9.00 | $ 2.00 | $ 8.00 | |||||||
4 | $ 16,000.00 | $ 7,000.00 | $ 9.00 | Minimun | 1000 | |||||||
5 | $ 7,000.00 | $ 6.00 | $ 8.00 | $ 6.00 | ||||||||
6 | $ 55,000.00 | $ 45,000.00 | $ 5,000.00 | $ 90.00 | $ 120.00 | |||||||
7 | $ 60,000.00 | $ 10,000.00 | $ 200.00 | $ 200.00 | ||||||||
8 | $ (1,000.00) | $ 5.00 | $ 6.00 | $ 5.00 | 800 | |||||||
9 | $ 10,000.00 | $ 2,000.00 | $ 8.00 | Minimum | 200 | |||||||
10 | $ (200.00) | $ 10.00 | $ 12.00 | $ 8.00 | can't get | 100 |