Chapter 55, Problem 1FRQ

a)

To determine

Firm’s fixed cost

Explanation of Solution

Q	Variable cost	Total cost	Fixed cost (total cost-variable cost)	Marginal cost	Average total cost
0	$0	$40	$40
1	20	60	40	20	60
2	50	90	40	30	45
3	90	130	40	40	43.3
4	140	180	40	50	45
5	200	240	40	60	48

The firm’s fixed cost is $40.

Economics Concept Introduction

Introduction: Fixed cost is the permanent or constant cost which a firm bears even when it is not producing any good.

b)

To determine

Labeled graph that shows firm’s marginal and average total cost curves

Explanation of Solution

  

Q	Variable cost	Total cost	Fixed cost (total cost-variable cost)	Marginal cost(TCn-1-TCn)	Average total cost(TC/Q)
0	$0	$40	$40
1	20	60	40	20	60
2	50	90	40	30	45
3	90	130	40	40	43.3
4	140	180	40	50	45
5	200	240	40	60	48

As variable cost is zero when output is zero therefore the firm incur fixed cost of $40 which it still experiences when the firm is not producing any unit of good. The graph represents cost of unit on vertical axis and quantity on horizontal axis where the MC curve is upward sloping according to the data of the table and ATC curve is likely U shaped on the graph. MC curve crosses at the lowest of ATC curve.

Economics Concept Introduction

Introduction: Marginal cost is calculated by subtracting the new total cost from the previous one and the average total cost is determined by dividing the total cost to quantity.