Question 1: Firm Costs in Competitive Equilibrium
Tim runs a firm that makes laptops. Unfortunately, an intern spilled coffee over the following
cost table, leaving only a couple entries legible.
a. Fill in the table below based on your knowledge of the relationships between the
different costs.
# of laptops
0
1
2
3
4
st
5
Total cost
1000
Variable cost Average total Average
cost
160
180
variable cost
120
100
Marginal
Cost
120
To fill in the remaining entries of the cost table, we need to understand the relationships between the different costs.
1. Total cost (TC): This is the sum of all costs incurred by the firm, including both fixed costs (FC) and variable costs (VC). As the number of laptops produced increases, the total cost also increases.
2. Variable cost (VC): This is the cost that varies with the level of production. It includes expenses such as the cost of materials and labor. As more laptops are produced, the variable cost also increases.
3. Average total cost (ATC): This is the total cost per unit of output. It is calculated by dividing the total cost by the number of laptops produced. As the number of laptops produced increases, the average total cost generally decreases due to economies of scale.
4. Average variable cost (AVC): This is the variable cost per unit of output. It is calculated by dividing the variable cost by the number of laptops produced. Similar to the average total cost, the average variable cost generally decreases as the number of laptops produced increases.
5. Marginal cost (MC): This is the additional cost incurred by producing one additional unit of output. It is calculated by taking the difference in total cost between two consecutive levels of production. The marginal cost can vary depending on various factors such as economies of scale, input prices, and production technology.
Now, let's fill in the missing entries in the cost table:
# of laptops | Total cost | Variable cost | Average total cost (ATC) | Average variable cost (AVC) | Marginal cost (MC)
0 | 1000 | - | - | - | -
1 | - | - | - | - | 120
2 | - | - | - | - | -
3 | - | - | - | - | -
4 | - | - | - | - | -
To complete the table, we would need more information or assumptions about the relationships between the costs for different levels of production. However, based on the information given, we can only determine that the marginal cost for producing the 1st laptop is 120.
To fill in the missing entries in the cost table, we can use the relationships between the different costs.
1. Total Cost (TC): This is the sum of the variable cost (VC) and the fixed cost (FC). Since the total cost is given for zero laptops (TC = 1000), we can assume that the fixed cost is 1000 since there are no variable costs.
2. Variable Cost (VC): This is the cost that varies with the level of production. We can find the variable cost for each level of production by subtracting the fixed cost from the total cost.
- VC(0) = TC(0) - FC = 1000 - 1000 = 0
- VC(1) = TC(1) - FC = 160 - 1000 = -840 (negative value, might be missing information or a mistake in the given table)
- VC(2) = TC(2) - FC = 180 - 1000 = -820 (negative value)
- VC(3) = TC(3) - FC = (missing information)
- VC(4) = TC(4) - FC = (missing information)
- VC(5) = TC(5) - FC = (missing information)
3. Average Total Cost (ATC): This is the total cost per unit of output. It can be calculated by dividing the total cost by the number of laptops produced.
- ATC(0) = TC(0)/0 = (undefined, as it involves dividing by zero)
- ATC(1) = TC(1)/1 = 160/1 = 160
- ATC(2) = TC(2)/2 = 180/2 = 90
- ATC(3) = (missing information)/3 = (missing information)
- ATC(4) = (missing information)/4 = (missing information)
- ATC(5) = (missing information)/5 = (missing information)
4. Average Variable Cost (AVC): This is the variable cost per unit of output. It can be calculated by dividing the variable cost by the number of laptops produced.
- AVC(0) = VC(0)/0 = (undefined, as it involves dividing by zero)
- AVC(1) = VC(1)/1 = -840/1 = -840 (negative value)
- AVC(2) = VC(2)/2 = -820/2 = -410 (negative value)
- AVC(3) = (missing information)/3 = (missing information)
- AVC(4) = (missing information)/4 = (missing information)
- AVC(5) = (missing information)/5 = (missing information)
5. Marginal Cost (MC): This is the additional cost incurred from producing one additional unit of output. It can be calculated by subtracting the total cost of the previous level of production from the total cost of the current level of production.
- MC(0) = (undefined, as there is no previous level of production)
- MC(1) = TC(1) - TC(0) = 160 - 1000 = -840 (negative value)
- MC(2) = TC(2) - TC(1) = 180 - 160 = 20
- MC(3) = TC(3) - TC(2) = (missing information)
- MC(4) = TC(4) - TC(3) = (missing information)
- MC(5) = TC(5) - TC(4) = (missing information)
Please note that negative values for variable cost, average variable cost, and marginal cost might indicate missing information or a mistake in the given table.
To fill in the missing values in the cost table, we need to understand the relationships between the different costs.
1. Total cost: This is the sum of all costs incurred by the firm for producing a certain number of units. To calculate the total cost for a given number of laptops, we need to add the fixed cost and the variable cost.
2. Variable cost: This is the cost that varies with the level of production. To calculate the variable cost for a given number of laptops, we can subtract the fixed cost from the total cost.
3. Average total cost: This is the average cost per unit of production and is calculated by dividing the total cost by the number of units produced.
4. Average variable cost: This is the average variable cost per unit of production and is calculated by dividing the variable cost by the number of units produced.
5. Marginal cost: This is the additional cost incurred by producing one more unit. It can be calculated by subtracting the total cost of producing n-1 units from the total cost of producing n units.
Using this information, we can fill in the missing values:
# of laptops Total cost Variable cost Average total cost Average variable cost Marginal cost
0 1000 - - - -
1 - - - - -
2 - - - - -
3 - - - - -
4 - - - - -
5 - - - - 120