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Chapter 22: Q. 3 (page 507)

During the past year, a firm produced 10,000laptop computers. Its total costs were \(5 million, and its fixed costs were \)2 million. What are the average variable costs of this firm?

Short Answer

Expert verified

The average variable costs of a firm is$300.

Step by step solution

01

Introduction

If such price from its products is below incremental cost curve so at profit-maximizing output level, a company can also opt to dissolve (or, more generally if it sells at multiple prices, its average revenue is a smaller amount than AVC). Developing everything won't create enough capital to afford the operating costs; producing anything would add deficits (costs in more than revenues) to the prices that'd inevitably be faced (the fixed costs). The firm just loses maintenance expenses from not delivering.
02

Explanation

Average variable cost is calculated by considering total variable costand also the number of units produced.

If the entire cost is $5 million, and glued cost is $2million, then total variable cost equals to $3million ( total variable cost = total cost - total fixed cost).

03

Substitution

The followingmay be a measurement of average variable cost.
Average variable cost=Total variable costNumber of units produced

=$3million10,000

=$300


Thus, the typical variable cost is $300considering total variable cost and therefore the number of units produced.

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Most popular questions from this chapter

During autumn months, passenger railroads across the globe deal with a condition called slippery rail. It results from a combination of water, leaf oil, and pressure from the train's weight, which creates a slippery black ooze that prevents trains from gaining traction.

a. One solution for slippery rail is to cut back trees from all of a rail firm's rail network on a regular basis, thereby helping to prevent the problem from developing. If incurred, would this railroad expense be a better example of a fixed cost or a variable cost? Why?

b. Another way of addressing slippery rail is to wait until it begins to develop. Then the company purchases sand and dumps it on the slippery tracks so that trains already enroute within the rail network can proceed. If incurred, would this railroad expense be a better example of a fixed cost or a variable cost? Why?

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Consider Figure 22-6. Suppose that the current scale of output for a typical firm facing this LAC curve, which applies to all firms in this industry, is between points A and B, at about 500 units per period. If a new firm entering the industry desires to produce at the minimum efficient scale, would it wish to produce 10 units per period, 500 units per period, or 1,000 units per period? Explain.

Suppose that a firm's only variable input is labor. The firm increases the number of employees from four to five, thereby causing weekly output to rise by two units and total costs to increase from 3,000per week to 3,300per week.

a. What is the marginal product of hiring five workers instead of four?

b. What is the weekly wage rate earned by the fifth worker?

There is an old saying that "two heads are better than one. "Why might this saying be more likely to hold true in producing output when the two heads involved are acquainted and have experience with tasks than when they seek to produce output after randomly getting together?
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