A firm’s product sells for $4 per unit in a highly competitive market.

The firm produces output using

capital (which it rents at $25 per hour) and labor (which is paid a wage of $30 per hour under a
contract for 20 hours of labor services). Complete the following table and use that information to
answer the questions that follow.

Instruction: Round your answers for Average Product of Capital and Average Product of Labor to 2
decimal places.

(1) (2) (3) (4) (5) (6) (7)

Marginal Average Average Value Marginal
Capital Labor Output Product of Product of Product of Product of Capital
Capital MPK Capital APK Labor APL VMPK
0 20 0 - - - -
1 20 50 50 50.00 2.50 ±.01 200

2 20 150 100 75.00 7.50 ±.01 400

3 20 300 150 100.00 15.00 600

4 20 400 100 100.00 20.00 400

5 20 450 50 90.00 22.50 ±.01 200

6 20 475 25 79.17 ±.01 23.75 ±.01 100

7 20 475 0 67.86 ±.01 23.75 ±.01 0

8 20 450 -25 56.25 ±.01 22.50 ±.01 -100

9 20 400 -50 44.44 ±.01 20.00 -200

10 20 300 -100 30.00 15.00 -400

11 20 150 -150 13.64 ±.01 7.50 ±.01 -600

a. Identify the fixed and variable inputs.

Labor is the fixed output and capital is the variable input.

b. What are the firm's fixed costs?

$
600

c. What is the variable cost of producing 475 units of output?

$
150

d. How many units of the variable input should be used to maximize profits?

e. What are the maximum profits this firm can earn?

$
1,150

f. Over what range of the variable input usage do increasing marginal returns exist?

From to
0 3

g. Over what range of the variable input usage do decreasing marginal returns exist?

From to
3 11

h. Over what range of input usage do negative marignal returns exist?

From to
7 11

Explanation:
See following table:
(1) (2) (3) (4) (5) (6) (7)
Marginal Average Average Value Marginal
Capital Labor Output Product of Product of Product of Product of Capital
Capital MPK Capital APK Labor APL VMPK
0 20 0 - - - -
1 20 50 50 50.00 2.50 200
2 20 150 100 75.00 7.50 400
3 20 300 150 100.00 15.00 600
4 20 400 100 100.00 20.00 400
5 20 450 50 90.00 22.50 200
6 20 475 25 79.17 23.75 100
7 20 475 0 67.86 23.75 0
8 20 450 -25 56.25 22.50 -100
9 20 400 -50 44.44 20.00 -200
10 20 300 -100 30.00 15.00 -400
11 20 150 -150 13.64 7.50 -600

a. Labor is the fixed input while capital is the variable input.

b. Fixed costs are 20($30) = $600.

c. To produce 475 units in the least-cost manner requires 6 units of capital, which cost $25 each.
Thus, variable costs are ($25)(6) = $150.

d. Using the VMPK = r rule, K = 6 maximizes profits.

e. The maximum profits are $4(475) - $30(20) - $25(6) = $1,150.

f. There are increasing marginal returns when K is between 0 and 3.

g. There are decreasing marginal returns when K is between 3 and 11.

h. There are negative marginal returns when K is greater than 7.

2 You are a manager for Herman Miller—a major manufacturer of office furniture. You recently hired
an economist to work with engineering and operations experts to estimate the production function for
a particular line of office chairs. The report from these experts indicates that the relevant production
function is:

Q = 2(K)1/2(L)1/2

where K represents capital equipment and L is labor. Your company has already spent a total of
$8,000 on the 9 units of capital equipment it owns. Due to current economic conditions, the company
does not have the flexibility needed to acquire additional equipment. If workers at the firm are paid a
competitive wage of $120 and chairs can be sold for $400 each, what is your profit-maximizing level
of output and labor usage?

Output:
60

Labor:
100

What is your maximum profit?

$
4,000

Explanation:
The profit-maximizing level of labor and output is achieved where VMPL = w. Here, VMPL =
(1/2)2($400)(9)1/2(L)-1/2 = $1,200(L)-1/2 and w = $120 per day. Solving yields L = 100. The profit-
maximizing level of output is Q = 2(9)1/2(100)1/2 = 60 units. The firm’s fixed costs are $8,000, its
variable costs are $120(100) = $12,000, and its total revenues are $400(60) = $24,000. Profits are
$24,000 – $12,000 – $8,000 = $4,000.

3
Recently, the Boeing Commercial Airplane Group (BCAG) recorded orders for more than 15,000
jetliners and delivered more than 13,000 airplanes. To maintain its output volume, this Boeing
division combines efforts of capital and more than 90,000 workers. Suppose the European company,
Airbus, enjoys a similar production technology and produces a similar number of aircraft, but that
labor costs (including fringe benefits) are higher in Europe than in the United States.

Given this information, the marginal product of workers at Airbus is likely higher than the marginal
product of workers at Boeing.
Explanation:
The higher wage rate in Europe induces Airbus to employ a more capital intensive input mix than
Boeing. Since Airbus optimally uses fewer workers than Boeing, and profit-maximization entails input
usage in the range of diminishing marginal product, it follows that the lower quantity of labor used by
Airbus translates into a higher marginal product of labor at Airbus than at Boeing.

4
A firm produces output according to the production function:

Q = F(K,L) = 4K + 8L.

a. How much output is produced when K = 2 and L = 3?

32

b. If the wage rate is $60 per hour and the rental rate on capital is $20 per hour, what is the cost-
minimizing input mix for producing 32 units of output?

Capital:
8

Labor:
0

c. If the wage rate decreases to $20 per hour but the rental rate on capital remains at $20 per hour,
what is the cost-minimizing input mix for producing 32 units of output?

Capital:
0

Labor:
4

Explanation:
a. With K = 2 and L = 3, Q = 4(2) + 8(3) = 32.

b. Since the MRTSKL is 8/4 = 2, that means a company can trade two units of capital for every one
unit of labor. This production function does not exhibit diminishing marginal rate of technical
substitution. The perfect substitutability between capital and labor means that only one input will be
utilized. Since MPL / w = 8 / 60 < 4 / 20 = MPK / r, the company should hire all capital. To get 32 units
of output, this will require 8 units of capital.

c. Here, we have MPL / w = 8 / 20 > 4 / 20 = MPK / r, so the company should hire only labor. To get
32 units of output, this will require 4 units of labor.

5
A firm produces output according to a production function:

Q = F(K,L) = min {2K,2L}.

a. How much output is produced when K = 2 and L = 3?

b. If the wage rate is $65 per hour and the rental rate on capital is $35 per hour, what is the cost-
minimizing input mix for producing 4 units of output?

Capital:
2

Labor:
2

c. How does your answer to part b change if the wage rate decreases to $35 per hour but the rental
rate on capital remains at $35 per hour?

It does not change.

rev: 10_10_2014_QC_55881

Explanation:
a. When K = 2 and L = 3, Q = 4 units.

b. The cost-minimizing mix of K and L that produce Q = 4 is K = 2, L = 2.

c. Since K and L are perfect complements in the production process, the cost-minimizing levels of K
and L do not depend on the rental rates of K and L. Therefore, the cost-minimizing levels of K and L
do not change with changes in the relative rental rates.

6
You are a manager at Glass Inc.—a mirror and window supplier. Recently, you conducted a study of
the production process for your single-side encapsulated window. The results from the study are
summarized in the table below and are based on the 8 units of capital currently available at your
plant. Workers are paid $60 per unit, per unit capital costs are $20, and your encapsulated windows
sell for $12 each. Given this information, what is your optimal labor and output decision?

Labor:
6

Output:
95

Given these decisions, what will be your profit?

$
620

(1) (2) (3)

Labor Capital Output
L K Q
0 8 0
1 8 10
2 8 30
3 8 60
4 8 80
5 8 90
6 8 95
7 8 95
8 8 90
9 8 80
10 8 60
11 8 30

Explanation:
The expanded table below provides some useful information for making your decision. According to
the VMPL = w rule, you should hire six units of labor and produce 95 units of output to maximize
profits. Your fixed costs are ($20)(8) = $160, your variable costs are ($60)(6) =$360, and your
revenues are ($12)(95) = $1,140. Thus, your maximum profits are $1,140 - $360 - $160 = $620.

(1) (2) (3) (4) (5) (6) (7)

Value
Marginal Average
Average Marginal
Labor Capital Output Product of Product of
Product of Product of
L K Q Labor Labor
Capital APK Labor
MPL APL
VMPL
0 8 0 - - - -
1 8 10 10 10.00 1.30 120
2 8 30 20 15.00 3.80 240
3 8 60 30 20.00 7.50 360
4 8 80 20 20.00 10.00 240
5 8 90 10 18.00 11.30 120
6 8 95 5 15.80 11.90 60
7 8 95 0 13.60 11.90 0
8 8 90 -5 11.30 11.30 -60
9 8 80 -10 8.90 10.00 -120
10 8 60 -20 6.00 7.50 -240
11 8 30 -30 2.70 3.80 -360

7
In the aftermath of a hurricane, an entrepreneur took a one-month leave of absence (without pay)
from her $5,000 per month job in order to operate a kiosk that sold fresh drinking water. During the
month she operated this venture the entrepreneur paid the government $2,500 in kiosk rent and
purchased water from a local wholesaler at a price of $1.34 per gallon. If consumers were willing to
pay $2.25 to purchase each gallon of fresh drinking water, how many units did she have to sell in
order to turn an economic profit?

Instruction: Round up to the nearest gallon.

8,242 ±1

Explanation:
Taking into account both implicit and explicit costs, the total fixed cost from operating the kiosk is
$7,500 (the $2,500 in rent plus the $5,000 in forgone earnings.) Total variable costs are $1.34 times
the number of gallons. The cost function is C(Q) = 7,500 + 1.34Q. The entrepreneur will earn a profit
when revenues exceed costs, which occurs when 2.25Q > 7,500 + 1.34Q. Solving for Q implies the
entrepreneur earns a profit when she sells Q > 8,242 gallons (rounding up).

8
In the wake of the energy crisis in California, many electricity generating facilities across the nation
are reassessing their projections of future demand and capacity for electricity in their respective
markets. As a manager at Florida Power & Light Company, you are in charge of determining the
optimal size of two electricity generating facilities. The figure below illustrates the short-run average
total cost curves associated with different facility sizes. Demand projections indicate that 6 million
kilowatts must be produced at your South Florida facility, and 2 million kilowatts must be produced at
your facility in the Panhandle. Determine the optimal facility size (S, M, or L) for these two regions,
and indicate whether there will be economies of scale, diseconomies of scale, or constant returns to
scale if the facilities are built optimally.

Optimal facility size for South Florida: L.

For the optimal facility in South Florida, there are: Diseconomies of scale.

Optimal facility size for the Panhandle: M.

For the optimal facility in the Panhandle, there are: Economies of scale.

Explanation:
Facility “L” produces 6 million kilowatt hours of electricity at the lowest average total cost, so this is
the optimal facility for South-Florida. Facility “M” produces 2 million kilowatt hours of electricity at the
lowest average total cost, so this is the optimal facility for the Panhandle. There are economies of
scale up to just below 3 million kilowatts per hour for facility “M,” and diseconomies of scale
thereafter. There are economies of scale up to just below 4 million kilowatts per hour for facility “L,”
and diseconomies thereafter. Therefore, facility “M” will be operating in the range of economies of
scale while facility “L” will be operating in the range of diseconomies of scale.

9
The decline in marginal productivity experienced when input usage increases, holding all other
inputs constant, is known as:

The law of diminishing marginal returns.

A property of a production function stating that as less of one input is used, increasing amounts of
another input must be employed to produce the same level of output, is known as:

The law of diminshing marginal rate of technical substitution.

Explanation:
The first is the law of diminishing marginal returns, and the second is the law of diminishing marginal
rate of technical substitution.

10
You were recently hired to replace the manager of the Roller Division at a major conveyor-
manufacturing firm, despite the manager’s strong external sales record. Roller manufacturing is
relatively simple, requiring only labor and a machine that cuts and crimps rollers. As you begin
reviewing the company’s production information, you learn that labor is paid $14 per hour and the
last worker hired produced 90 rollers per hour. The company rents roller cutters and crimping
machines for $16 per hour, and the marginal product of capital is 130 rollers per hour.

Should you change the mix of capital and labor, and if so, how should it change?

You should increase capital and decrease labor.

Explanation:
Since MRTSKL ≠ w / r, the firm was not using the cost minimizing combination of labor and capital. To
achieve the cost minimizing combination of inputs, you should increase capital and decrease labor,
since MPL / w = 90 / 14 < MPK / r = 130 / 16.

11
Complete the following statements with the correct type of costs.

Costs associated with fixed inputs that do not change when output changes are fixed costs.

Costs associated with variable inputs that do change when output changes are variable costs.

Costs that are forever lost once they have been paid are sunk costs.

Explanation:
Fixed costs are associated with fixed inputs, and do not change when output changes. Variable
costs are costs associated with variable inputs, and do change when output changes. Sunk costs
are costs that are forever lost once they have been paid.

12
A manager hires labor and rents capital equipment in a very competitive market. Currently the wage
rate is $7 per hour and capital is rented at $12 per hour. If the marginal product of labor is 50 units of
output per hour and the marginal product of capital is 75 units of output per hour, should the firm
increase, decrease, or leave unchanged the amount of capital used in its production process?

The firm should decrease capital.

Explanation:
Since MRTSKL ≠ w / r, the firm is not using the cost minimizing combination of labor and capital. To
minimize costs, the firm should decrease capital (and increase labor) since the marginal product per
dollar spent is smaller for capital: (MPK / r) = (75 / 12) < (MPL / w) = (50 / 7).

13
In an effort to stop the migration of many of the automobile manufacturing facilities from the Detroit
area, Detroit’s city council is considering passing a statute that would give investment tax credits to
auto manufacturers. Effectively, this would reduce auto manufacturers’ costs of using capital and
high-tech equipment in their production processes.

What is the likely impact of this statute on the number of workers this automaker hires?

It will decrease.

Explanation:
An investment tax credit would reduce the relative price of capital to labor. Other things equal, this
would increase w / r, thereby making the isocost line more steep. This means that the cost-
minimizing input mix will now involve more capital and less labor, as firms substitute toward capital.
Labor unions are likely to oppose the investment tax credit since the higher capital-to-labor ratio will
translate into lost jobs.

14
An economist estimated that the cost function of a single-product firm is:

C(Q) = 120 + 20Q + 25Q2 + 10Q3.

Based on this information, determine the following:

a. The fixed cost of producing 10 units of output.

$
120

b. The variable cost of producing 10 units of output.

$
12,700
c. The total cost of producing 10 units of output.

$
12,820

d. The average fixed cost of producing 10 units of output.

$
12

e. The average variable cost of producing 10 units of output.

$
1,270

f. The average total cost of producing 10 units of output.

$
1,282

g. The marginal cost when Q = 10.

$
3,520

Explanation:
a. FC = $120.

b. VC(10) = 20(10) + 25(10)2 + 10(10)3 = $12,700.

c. C(10) = 120 + 20(10) + 25(10)2 + 10(10)3 = $12,820.

d. AFC(10) = $120 / 10 = $12.

e. AVC(10) = VC(10) / 10 = $12,700 / 10 = $1,270.

f. ATC(10) = AFC(10) + AVC(10) = $1,282.

g. MC(10) = 20 + (2*25)(10) + (3*10)(10)2 = $3,520.

15
A local restaurateur who had been running a profitable business for many years recently purchased
a three-way liquor license. This license gives the owner the legal right to sell beer, wine, and spirits
in her restaurant. The cost of obtaining the three-way license was about $90,000, since only 300
such licenses are issued by the state. While the license is transferable, only $75,000 is refundable if
the owner chooses not to use the license. After selling alcoholic beverages for about one year, the
restaurateur came to the realization that she was losing dinner customers and that her profitable
restaurant was turning into a noisy, unprofitable bar. Subsequently, she spent about $8,000 placing
advertisements in various newspapers and restaurant magazines across the state offering to sell the
license for $80,000. After a long wait, she finally received one offer to purchase her license for
$77,000.

Was it sensible for the restaurateur to spend $8,000 in order to sell the license for $80,000?

No - it is guaranteed to generate a loss.

Would you recommend that she accept the $77,000 offer?

Yes - the $8,000 is a sunk cost, so accepting this offer makes her better off.

Explanation:
Had she not spent the $8,000 on advertising but instead collected the $75,000 refund, her total loss
would have been limited to her sunk costs of $15,000. Her decision to spend $8,000 on advertising
in an attempt to fetch an extra $5,000 was clearly foolish. However, the $8,000 is a sunk cost and
therefore irrelevant in deciding whether to accept the $77,000 offer. She should accept the $77,000
offer because doing so makes her $2,000 better off than obtaining the $75,000 refund.

16
You are the manager of a large but privately held online retailer that currently uses 17 unskilled
workers and 6 semiskilled workers at its warehouse to box and ship the products it sells online. Your
company pays its unskilled workers the minimum wage but pays the semiskilled workers $9.75 per
hour. Thanks to government legislation, the minimum wage in your state will increase from $7.25 per
hour to $8.15 per hour on July 24, 2013. Discuss the short-run implications of this legislation on your
company’s optimal mix of inputs.

You will increase your hiring of semiskilled workers and decrease your hiring of unskilled workers.

Explanation:
Assuming that the optimal mix of unskilled and semi-skilled labor were being utilized at the time the
legislation passed, in the short run, a higher minimum wage paid to unskilled labor implies that to
minimize costs the retailer should increase its use of semi-skilled workers and decrease its use of
unskilled workers. In the longer run, the retailer may want to consider substituting capital for labor
(invest in some machines to automate a portion of your boxing needs). Obviously, additional
information would be required to conduct a net present value analysis for these long-run
investments, but it is probably worth getting this information and running some numbers.

17
A multiproduct firm’s cost function was recently estimated as:

C(Q1,Q2) = 90 - 0.5Q1Q2 +0.4Q12 + 0.3Q22

a. Are there economies of scope in producing 10 units of product 1 and 10 units of product 2?

Yes - there are economies of scope.

b. Are there cost complementarities in producing products 1 and 2?

Yes - there are cost complementarities.

c. Suppose the division selling product 2 is floundering and another company has made an offer to
buy the exclusive rights to produce product 2. How would the sale of the rights to produce product 2
change the firm’s marginal cost of producing product 1?

Marginal cost would increase.

Explanation:
a. For a quadratic multi-product cost function, economies of scope exist if f – aQ1Q2 > 0. In this
case, f = 90 and a = -0.5, so economies of scope exist since f is fixed cost, which is always
nonnegative.

b. Cost complementarities exist since a = -0.5 < 0, which holds in this case.

c. Since a = -0.5 < 0, the marginal cost of producing product 1 will increase if the division that
produces product 2 is sold.

18
The A-1 Corporation supplies airplane manufacturers with preformed sheet metal panels that are
used on the exterior of aircraft. Manufacturing these panels requires only five sheet metal–forming
machines, which cost $500 each, and workers. These workers can be hired on an as-needed basis
in the labor market at $9,000 each. Given the simplicity of the manufacturing process, the preformed
sheet metal panel market is highly competitive. Therefore, the market price for one of A-1’s panels is
$80. Based on the production data in the accompanying table, how many workers should A-1 hire to
maximize its profits?

Workers Output
Machines

5 0 0
5 1 600
5 2 1,000
5 3 1,290
5 4 1,480
5 5 1,600
5 6 1,680

Number of workers:
5

Explanation:
To maximize profits the firm should continue adding workers so long as the value marginal product of
labor exceeds the wage. The value marginal product of labor is defined as the marginal product of
labor times the price of output. Here, output sells for $80 per panel, so the value marginal product of
the third worker is $80(290) = $23,200. The table below summarizes the VMPL for each choice of
labor. Since the wage is $9,000, the profit maximizing number of workers is 5.
 Workers Output MPL VMPL Wage
Machines

5 0 0 – – –
5 1 600 600 $48,000 $9,000
5 2 1,000 400 $32,000 $9,000
5 3 1,290 290 $23,200 $9,000
5 4 1,480 190 $15,200 $9,000
5 5 1,600 120 $9,600 $9,000
5 6 1,680 80 $6,400 $9,000

19
Hyundai Heavy Industries Co. is one of Korea’s largest industrial producers. According to an article
in BusinessWeek Online, the company is not only the world’s largest shipbuilder but also
manufactures other industrial goods ranging from construction equipment and marine engines to
building power plants and oil refineries worldwide. Despite being a major industrial force in Korea,
several of the company’s divisions are unprofitable, or “bleeding red ink” in the words of the article.
Indeed, last year the power plant and oil refineries building division recorded a $105 million loss, or
19 percent of its sales. Hyundai Heavy Industries recently hired a new CEO who is charged with the
mission of bringing the unprofitable divisions back to profitability. According to BusinessWeek,
Hyundai’s profit-driven CEO has provided division heads with the following ultimatum: “…hive off
money-losing businesses and deliver profits within a year—or else resign.”

Suppose you are the head of the marine engine division and that it has been unprofitable for 7 of the
last 10 years. While you build and sell in the competitive marine engines industry, your primary
customer is Hyundai’s profitable ship-building division. This tight relationship is due, in large part, to
the technical specifications of building ships around engines. Suppose that in our end-of-year report
to the CEO you must disclose that while your division reduced costs by 10 percent, it still remains
unprofitable. Which of the following, if true, would be valid arguments you could make to the CEO
when explaining why your division should not be shut down.

There are cost complementarities and economies of scope.

Explanation:
Given the tightly woven marine engine and shipbuilding divisions, economies of scope and cost
complementarities are likely to exist. Eliminating the unprofitable marine engine division may actually
raise the shipbuilding division’s costs and cause that division to become unprofitable. For this
argument to withstand criticism, you must show the CEO that the quadratic multi-product cost
function exhibits cost complementarities and economies of scope, which occurs when a < 0
and f - aQ1Q2 > 0, respectively, and compare profitability under the different scenarios.

20
A firm can manufacture a product according to the production function:

Q = F(K,L) = K3/4L1/4.
a. Calculate the average product of labor, APL, when the level of capital is fixed at 81 units and the
firm uses 16 units of labor.

Instruction: Round your responses to 3 decimal places.

3.375 ±.001

What is the average product of labor when the firm uses 256 units of labor?

0.422 ±.001

b. Find an expression for the marginal product of labor, MPL, when the amount of capital is fixed at
81 units.

Instruction: The second response is the exponent on L in the expression. Round your responses to
2 decimal places.

MPL = *L ^
6.75 ±.01 -0.75 ±.01

Then, illustrate that the marginal product of labor depends on the amount of labor hired by
calculating the marginal product of labor for 16 and 81 units of labor.

Instruction: Round your responses to 3 decimal places.

MPL when L = 16:

0.844 ±.001

MPL when L = 81:

0.250 ±.001

c. Suppose capital is fixed at 81 units. If the firm can sell its output at a price of $200 per unit and
can hire labor at $50 per unit, how many units of labor should the firm hire in order to maximize
profits?

Instruction: Enter your response as a whole number.

81 ±.01

Explanation:
a. When K = 81 and L = 16, Q = (81)0.75(16)0.25 = 54. Thus, APL = Q/L = 54/16 = 3.375. When K = 81
and L = 256, Q = (81)0.75(256)0.25 = (27)(4) = 108. Thus, APL = 108/256 = 0.422.

b. The marginal product of labor is MPL = (1/4)*(81)0.75(L)-3/4 = 6.75*(L)-0.75. When L = 16, MPL =
6.75*(16)-0.75 = 0.844. When L = 81, MPL = 6.75*(81)-0.75 = 0.25. Thus, as the number of units of labor
hired increases, the marginal product of labor decreases MPL(16) = 0.844 > 0.250 = MPL(81),
holding the level of capital fixed.

c. We must equate the value marginal product of labor to the wage and solve for L. Here, VMPL = (P)
(MPL) = ($200)(6.75)(L)-0.75=1350(L)-0.75. Setting this equal to the wage of $50 gives 1350(L)-0.75 = 50.
Solving for L, the optimal quantity of labor is L = 81.

21

The World of Videos operates a retail store that rents movie videos. For each of the last 10 years,
World of Videos has consistently earned profits exceeding $29,000 per year. The store is located on
prime real estate in a college town. World of Videos pays $2,600 per month in rent for its building,
but it uses only 50 percent of the square footage rented for video rental purposes. The other portion
of rented space is essentially vacant. Noticing that World of Videos only occupies a portion of the
building, a real estate agent told the owner of World of Videos that she could add $1,750 per month
to her firm’s profits by renting out the unused portion of the store. While the prospect of adding an
additional $1,750 to World of Videos’s bottom line was enticing, the owner was also contemplating
using the additional space to rent video games. What is the opportunity cost of using the unused
portion of the building for video game rentals?

$
1,750

Explanation:
The $1,750 per month that could be earned by renting out the excess rental space.

22
A firm’s fixed costs for 0 units of output and its average total cost of producing different output levels
are summarized in the table below. Complete the table to find the fixed cost, variable cost, total cost,
average fixed cost, average variable cost, and marginal cost at all relevant levels of output.

Instruction: Round your answers for Average Fixed Cost (AFC) and Average Variable Cost (AVC) to
2 decimal places.
 Q FC VC TC AFC AVC ATC MC
0 $15,000 0 15,000 - - - -

100 15,000 15,000 30,000 150.00 150.00 300 150

200 15,000 25,000 40,000 75.00 125.00 200 100

300 15,000 37,500 52,500 50.00 125.00 175 125

400 15,000 75,000 90,000 37.50 ±.1 187.50 ±.1 225 375

500 15,000 147,500 162,500 30.00 295.00 325 725

600 15,000 225,000 240,000 25.00 375.00 400 775

Explanation:
See table below:

(1) (2) (3) (4) (5) (6) (7) (8)

Average
Variable Average Average Marginal
Quantity Fixed Cost Total Cost Variable
Cost Fixed Cost Total Cost Cost
Q FC TC Cost
VC AFC ATC MC
AVC
0 15,000 0 15,000 - - - -
100 15,000 15,000 30,000 150.00 150.00 300 150
200 15,000 25,000 40,000 75.00 125.00 200 100
300 15,000 37,500 52,500 50.00 125.00 175 125
400 15,000 75,000 90,000 37.50 187.50 225 375
500 15,000 147,500 162,500 30.00 295.00 325 725
600 15,000 225,000 240,000 25.00 375.00 400 775