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conrad136 conrad136
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3 weeks ago
Relationship between Short and Long Run Average Costs

The table shows information about Umbrella Corporation's short-run costs.

Quantity of
Prescription Drugs
Total Fixed CostTotal Variable CostTotal Cost
0$4000​
1$7​
2$14​
3$21​
4$4028​
What is the average fixed cost of producing 4 prescription drugs? What is the average variable cost?
What is the average total cost of producing 2 prescription drugs? What is the marginal cost?

▸ $2000, $7, $2007, $2000

▸ $2000, $21, $2007, $2000

▸ $1000, $7, $2007, $2000

▸ $1000, $7, $2007, $7
Textbook 

Macroeconomics


Edition: 3rd
Authors:
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Answer verified by a subject expert
miemitchmiemitch
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3 weeks ago
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More solutions for this book are available here
$1000, $7, $2007, $7

For 4 prescription drugs:
Average fixed cost = Total Fixed Cost / Quantity = 4000/4 = $1000
Average variable cost = Total Variable Cost/Quantity. Because Total Variable Cost is not shown in the table, we first need to determine Total Variable Cost.
Total Cost = Total Fixed Cost + Total Variable Cost
Total Variable Cost = Total Cost - Total Fixed Cost = 4028 - 4000 = $28
Therefore, average variable cost = 28/4 = $7

For 2 prescription drugs:
Average total cost = Total Cost/Quantity = (Total Fixed Cost + Total Variable Cost)/Quantity = (4000 + 14)/2 = $2007
Marginal cost is the change in total cost from producing one more unit of a good.
Marginal cost = (Total Cost of Producing 2 prescription drugs - Total Cost of Producing 1 prescription drug)/(2-1) =
(Fixed Cost of Producing 2 prescription drugs + Variable Cost of Producing 2 prescription drugs) - (Fixed Cost of Producing 1 prescription drug + Variable Cost of Producing 1 prescription drug) =
(4000 + 14) - (4000 + 7) = $7
This verified answer contains over 140 words.

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