Question

The cost function of a firm is given below:

Output	0	1	2	3	4	5	6
Total Cost	40	80	110	126	128	135	180

Find the following:

1. Total fixed costs
2. Total variable costs
3. Average fixed costs
4. Average variable costs
5. Average total costs
6. Marginal costs

Answer 1

i. Total Fixed Cost (TFC):

Fixed costs are those that do not vary with output.

TFC = TC at Output 0 = 40 (constant for all levels)

ii. Total Variable Cost (TVC):

TVC = TC − TFC

Output	Total Cost	TVC = TC − 40
0	40	0
1	80	80 − 40 = 40
2	110	110 − 40 = 70
3	126	126 − 40 = 86
4	128	128 − 40 = 88
5	135	135 − 40 = 95
6	180	180 − 40 = 140

iii. Average Fixed Cost (AFC):

AFC = `"TFC"/"Output"`

Output	TFC	AFC (₹)
1	40	40
2	40	20
3	40	13.33
4	40	10.0
5	40	8.0
6	40	6.67

iv. Average Variable Cost (AVC)

AVC = `"TVC"/"Output"`

Output	TVC	AVC
1	40	40
2	70	35
3	86	28.67
4	88	22.0
5	95	19.0
6	140	23.33

v. Average Total Cost (ATC):

ATC = `"TC"/"Output"`

Output	Total Cost	ATC
1	80	80
2	110	55
3	126	42
4	128	32
5	135	27
6	180	30

vi. Marginal Cost (MC):

MC = `"ΔTC"/"ΔOutput"`

From Q	To Q	TC Change	MC
0	1	80 − 40	40
1	2	110 − 80	30
2	3	126 − 110	16
3	4	128 − 126	2
4	5	135 − 128	7
5	6	180 − 135	45