Microeconomics

Unit 7 [BU224 Assignment Template]

Unit 7 Assignment: Fixed Costs and Variable Costs

Name:

Course Number and Section:

Date:

 

 

General Instructions for all Assignments

 

1. Unless specified differently by your course instructor, save this assignment template to your computer with the following file naming format: Course number_section number_last name_first name_unit number

 

2. At the top of the template, insert the appropriate information: Your name, course number and section, and the date

 

3. Insert your answers below, or in the appropriate space provided for in the question. Your answers should follow APA 6th edition format with citations to your sources and, at the bottom of your last page, a list of references. Your answers should also be in Standard English with correct spelling, punctuation, grammar, and style (double-spaced, in Times New Roman, 12–point, and black font). Respond to questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions.

 

4. Upload the completed Assignment to the appropriate Dropbox.

 

5. Any questions about the Assignment, or format questions, should be directed to your course instructor.

 

 

Assignment

 

In this Assignment, you will define and calculate the remaining six major cost elements of a business, when given the total costs and the quantity produced, as well as use the computed costs to determine a minimum cost output level for that business. In addition, you will also clearly explain how the average total cost of a new output level is affected by its share of fixed costs and variable costs.

 

Questions

 

1. When ONLY Total Costs (TC) are known , explain how to calculate each of the following:

 

a. Fixed Costs (FC) (1 point)

 

b. Variable Costs (VC) (1 point)

 

c. Average Variable Costs (AVC) (1 point)

 

d. Average Total Costs (ATC) (1 point)

 

e. Average Fixed Costs (AFC) (1 point)

 

f. Marginal Costs (MC) (1 point)

 

2. Table 1 shows the hourly production and Total Cost estimates for a new manufacturing firm wishing to enter the smartphone market. Fill in the blank cells in columns a., b., c., d., and e. on the table by computing the appropriate values.

 

Table 1

Smart cell phones produced in an hour	Total Cost (TC)	Variable Costs (VC) (2 points)     a.	Average Variable Costs (AVC) (2 points)   b.	Average Total Costs (ATC) (2 points)   c.	Average Fixed Cost (AFC) (2 points)   d.	Marginal Cost (MC) (3 points)   e.
0	$3,200		n/a	n/a	n/a	n/a
15	$3,525
30	$3,875
45	$4,250
60	$4,650
75	$5,075
90	$5,525
105	$6,725
120	$8,210
135	$9,950

 

 

3. Based on your calculations in completing the table in Question 2, what is this manufacturer’s minimum cost output level? Explain your answer. (3 points)

 

4. According to textbook page 334, when one additional unit is produced, two factors directly impact the change in average total costs, the Spreading effect and the Diminishing Returns effect. In the following two situations, explain how the factors of the Spreading effect and the Diminishing Returns effect cause the average total cost to be different.

 

a. Production of the 10th Gizmo resulted in an average total cost (ATC) of $20, but production of the 11th Gizmo resulted in an average total cost of $22. (3 points)

 

b. Production of the 10th Gizmo resulted in an average total cost (ATC) of $20, but production of the 11th Gizmo resulted in an average total cost of $18. (3 points)

 

 

——————————————–

References:

 

 

Unit 7 Assignment: Fixed Costs and Variable Costs	Possible Points	Points Earned
Overall Writing:	8
Used correct file name in uploading assignment document.	1
Demonstrated concerted effort to utilize material from the textbook, Learning Activities, and/or seminars to answer questions.	3
Correctly formatted in-text citations and listed at least ONE reference.	3
Used standard English with few or no grammatical errors.	1
Individual Questions:	32
1.a. Correctly explained the calculation of fixed cost.	2
1.b. Correctly explained the calculation of variable cost.	2
1.c. Correctly explained the calculation of average variable cost.	2
1.d. Correctly explained the calculation of average total cost.	2
1.e. Correctly explained the calculation of average fixed cost	2
1.f. Correctly explained the calculation of marginal cost	2
2.a. Correctly calculated variable cost.	2
2.b. Correctly calculated average variable cost.	2
2.c. Correctly calculated average total cost.	2
2.d. Correctly calculated average fixed cost	2
2.e. Correctly calculated marginal cost	3
3. Correctly Identified the minimum cost output level.	3
4.a. Correctly explained why the average total cost of 11th Gizmo is $22.	3
4.b. Correctly explained why the average total cost of 11th Gizmo is $18.	3
Less points deducted for late submission
Total Points	40