Total, Variable, Fixed, and Marginal Cost and Output

TC is the summation of all costs, where costs are classified on the basis of whether they are fixed or variable.

Total fixed cost (TFC) is the summation of all expenses that do not change as the level of production varies.

Total variable cost (TVC) is the summation of all variable expenses.

[Practice Problems] A firm’s director of operations gathers the following information about the firm’s cost structure at different levels of output:

[Practice Problems] Refer to the data in the exhibit. When quantity produced is equal to 4 units, the average fixed cost (AFC) is closest to:

A. 50.

B. 60.

C. 110.

[Solutions] A

Average fixed cost is equal to total fixed cost divided by quantity produced: AFC = TFC/Q = 200/4 = 50.

[Practice Problems] Refer to the data in the exhibit. When the firm increases production from 4 to 5 units, the marginal cost (MC) is closest to:

A. 40.

B. 64.

C. 80.

[Solutions] C

Marginal cost is equal to the change in total cost divided by the change in quantity produced. MC = ΔTC/ΔQ = 80/1 = 80.

[Practice Problems] Refer to the data in the exhibit. The level of unit production resulting in the lowest

average total cost (ATC) is closest to:

A. 3.

B. 4.

C. 5.

[Solutions] C

Average total cost is equal to total cost divided by quantity produced.

At 5 units produced the average total cost is 104. ATC = TC/Q = 520/5 = 104.