Section 3 provides interpretations of the important economic costs. Below is a list of the relationships in between these costs. Making use of the abbreviations from the ahead section, and using Q as the number of goods or services produced, us have

1. TVC + TFC = TC2. AVC = TVC/Q3. AFC = TFC/Q4. ATC = TC/Q5. MC = readjust in TC/change in Q

Examples

Example 1

Problem: Let’s suppose that fixed prices are \$300 and also variable expenses are \$900. What is full cost?

Solution: total cost = \$300 + \$900 = \$1,200

Example 2

Problem: Let’s intend that you develop 50 bushels that apples, and you use the prices from example 1. What are mean variable costs and average solved costs?

Solution: AVC = \$900/50 = \$18, and also AFC = \$300/50 = \$6

Example 3

Problem: In the above example, what is average complete cost?

Solution: ATC = \$1,200/50 = \$24

example 4 Problem: If you increase your production by 5 bushels, and also your complete cost boosts by \$60, what is your marginal cost?

Solution : MC = \$60/5 = \$12

Example 5

Problem: In the following table, a firm has a selection of producing from zero come 4 products. We recognize some that the costs.

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Deserve to you calculation the lacking values?

 Q TC TFC TVC ATC AFC AVC MC 0 80 1 80 2 110 3 70 4 90

The following table is a copy of the over table v the absent values to fill in. The dashes suggest that the worths cannot it is in calculated (undefined) since the quantity is zero.

Solution:

 Q TC TFC TVC ATC AFC AVC MC 0 80 80 0 – – – – 1 160 80 80 160 80 80 80 2 220 80 140 110 40 70 60 3 290 80 210 96.7 26.7 70 70 4 380 80 300 95 20 75 90

Video ExplanationFor a video explanation of price calculations, please watch: