Econ

Table1

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Average Fixed cost

Average Variable Cost

Average Total Cost

Marginal Cost

Price

Total Revenue

Marginal Revenue

Output

0

0,00

0,00

0,00

0,00

345,00

0,00

0,00

1

180,00

135,00

315,00

315,00

300,00

300,00

300,00

2

90,00

127,50

217,50

120,00

249,00

498,00

198,00

3

60,00

120,00

180,00

105,00

213,00

639,00

141,00

4

45,00

112,50

157,50

90,00

189,00

756,00

117,00

5

36,00

111,00

147,00

105,00

165,00

825,00

69,00

6

30,00

112,50

142,50

120,00

144,00

864,00

39,00

7

25,71

115,70

141,41

134,90

126,00

882,00

18,00

8

22,50

121,90

144,40

165,30

111,00

888,00

6,00

9

20,00

130,00

150,00

194,80

99,00

891,00

3,00

10

18,00

139,50

157,50

225,00

87,00

870,00

-21,00

Total Cost

Profit

315

-15,00

435

63,00

540

99,00

630

126,00

735

90,00

855

9,00

989,87

-107,87

1155,2

-267,20

1350

-459,00

1575

-705,00

of calculations:TFC= AFC when Q = 1, so TFC = 180AFC= TFC/QAVC= TVC/QATC= AFC + AVC eg, when Q= 2, ATC = $90.00 + $127.5 = $217.5

Marginalcost is the additional cost that is incurred by producing an extraunit of output (MC). It is, therefore, calculated as follows MC =VC1– VC0

MarginalRevenue, MR is the additional revenue earned from the additional unitof output. It is calculated from the formula MR = R1– R0

Fromthe graph, the profit maximizing output is 4 units. The profit atthis level of output is $126. Production beyond this level of outputwill lead to a reduction in the profit earned and eventually to aloss. The loss is maximum when maximum units of output are produced.That is at 10 units, we have got the maximum loss. The firm makesmaximum profit when the MR is greater than the marginal cost. This isas illustrated in the graph in the Excel spread sheet.

Normalprofits are the types of profits that normally attract customers aswell as retain the suppliers in a market that is well competitive. Ina perfectly competitive market, the normal profits are the only onesthat can fit because if the abnormal profits are high, there would bemore competitors leading to the prices becoming low as well as theprofits. If there are abnormally low profits then, most of the firmswill leave the market and the firms that will remain will run themarket and in the process they will drive the prices up as well asthe profits.

omicprofits these are profits that one achieves when they less all thecosts of the business including the opportunity cost from the totalincome made in the business. For this reason, it can either be profitor loss. In general this is the accounting profit less the implicitcost. (Arnold, 2008). Assuming that a company has revenue of $200,000expense of $120,000 and an opportunity cost of $65,000 then theeconomic profit is = 200,000 – (120,000+65,000) giving you $15,000.The positive figure means that there are economic profits.

Implicitcosts are cost that the business incurs but is not clearly shown andreported as a separate cost. This costs cannot be easily traced andare commonly known as private costs (Arnold, 2008). The cost may takevarious forms such as money and time spent on producing a product. Onthe other hand explicit cost is the cost incurred on the inputs usedin production of a specified quantity of an output. The cost isclearly shown in the books as a separate cost and the cost can bedirectly be traced. Explicit costs are also called accounting costand can either be direct or indirect. to illustrate this, take anexample of a firm producing chairs, that cost incurred on purchase ofraw materials and the direct labor are explicit cost while the timespent on making the chair can be equated to implicit cost.

Theoptimal plant size is the approximate net worth of the firm. Itindicates the maximum production capacity of the firm. A firm canonly produce depending on the assets they have. That is, the higherthe production capacity, the higher the plant size. Based on the datagiven in this case, the maximum production capacity is 10 units andtherefore, the plant size of the firm can be estimated by assessingthe number and value of the plant needed to produce one unit ofoutput.

Fixedcosts are those costs in a business that do not change with thechange in the output of the company. The firm has to incur this costwhether producing output or not. Fixed cost, therefore, does notdepend on the level of output, unlike variable costs. An example ofthis is rent or interest on loan. A firm should be capable ofrecovering the fixed cost for it to be able to sustain its survivalin the market. Otherwise, if the firm is incapable of recovering thiscost then it should close down the operations.

Onthe other hand, variable costs are those costs that change with achange in the output. This cost increases with an increase in thelevel of output. The cost is equal to zero when the firm is notproducing any units of output. Examples of this are cost of rawmaterials, direct labor, etc. (Mudida, 2008). A firm may fail torecover its variable cost but it will still be capable of sustainingits survival and hence one should not close the operations simplybecause the firm is incapable of recovering the variable cost. Aslong as the firm can recover its fixed cost, the firm may makenegative profit which is a loss but this is recoverable in the longrun.

References

Arnold,G. (2008). CostAccounting. 4thed. Britain: Pearson Education

MudidaR. (2010).&nbspIntroductionto modern economics, New York:Oxford Press.