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Type of Costs. Calculation example
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Task

The following dependence of the total costs of the enterprise (TC) on the output (Q) is given:


Q 0 1 2 3 4 5 6
TC 60 100 130 155 190 245 335


Determine fixed (TFC), variable (TVC), marginal (MC), total average (ATC), average fixed (AFC), and average variable (AVC) costs.


Comment.


If you are not familiar with the subject area, you should first read the article "Types of Costs". It also provides
explanations of the notations Q, TC, TFC, TVC, MC, ATC, AFC, AVC.

To solve, we will need to accept the statement that fixed costs (TFC) are constant for any volume of production.

Solution

To solve this, we need to accept the statement that fixed costs (TFC) are constant for any volume of production. In fact,
this is not entirely correct.

Fixed Costs (TFC)

Fixed costs are the costs that do not change with the level of output.
From the table, when Q = 0, TC = 60. Therefore, TFC = 60.

Variable Costs (TVC)

Variable costs change with the level of output. TVC can be calculated as:

TVC = TC − TFC
TVC = TC − 60

Q 0 1 2 3 4 5 6
TC 60 100 130 155 190 245 335
TVC 0 40 70 95 130 185 275

Marginal Costs (MC)

Marginal cost is the change in total cost when one more unit is produced.
It can be calculated as:

MC=ΔTC / ΔQ
MC1 = (100 - 60 ) / ( 1 - 0 ) = 40

Q 0 1 2 3 4 5 6
TC 60 100 130 155 190 245 335
MC - 40 30 25 35 55 90

Total Average Costs (ATC)

Total average cost is the total cost per unit of output. It can be calculated as:

ATC=TC / Q

Q 0 1 2 3 4 5 6
TC 60 100 130 155 190 245 335
ATC - 100 65 51.67 47.5 49 55.83

Average Fixed Costs (AFC)

Average fixed cost is the fixed cost per unit of output. It can be calculated as:

AFC=TFC / Q

Q 0 1 2 3 4 5 6
TFC 60 60 60 60 60 60 60
AFC - 60 30 20 15 12 10

Average Variable Costs (AVC)

Average variable cost is the variable cost per unit of output. It can be calculated as:

AVC=TVC / Q

Q 0 1 2 3 4 5 6
TVC 0 40 70 95 130 185 275
AVC - 40 35 31.67 32.5 37 45.83

Summary

  • Fixed Costs (TFC): 60

  • Variable Costs (TVC): Calculated for each Q

  • Marginal Costs (MC): Calculated for each Q

  • Total Average Costs (ATC): Calculated for each Q

  • Average Fixed Costs (AFC): Calculated for each Q

  • Average Variable Costs (AVC): Calculated for each Q

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 Types of Costs | Описание курса | Indices and economic indicators