Variable cost & fixed cost
Suppose the total cost of producing 10,000 tennis balls is $30,000, and the fixed cost is $10,000.
(a) calculate the variable cost
(b) when output is 10,000, what are the average variable cost (AVC) and the average fixed cost (AFC)
(c) assuming that the cost curves have the usual shape, calculate the distances, in terms of dollars, between average total cost and average variable cost when the output levels are 10,000 and 30,000. why are the distances different at the two output levels?
- CLv 69 years agoFavorite Answer
$30000 - $10000 = $20000
AVC = $20000/10000 = $2
AFC = $10000/10000 = $1
(having usual sharp = constant fixed cost and variable cost)
Total cost for 10000 unit = $2x10000 + 10000 = 30000
Total cost for 30000 unit = $2x30000 + 10000 = 70000
ATC1(average total cost) = $30000/10000 = $3
AVC1 = $2/1 = $2
Difference1 = $3-2 = $1
ATC3 = $70000/30000 = 2.3333
AVC3 = $2/1 = $2
Difference = $0.3333
There is a difference because, with constant fixed cost, more producing unit could share the fixed cost. And thus, making the total cost per unit becomes lower.