The following table shows the total cost schedule of a firm. What is the total fixed cost schedule of this firm? Calculate the TVC, AFC, AVC, SAC and SMC schedules of the firm.
| 0 | 10 |
| 1 | 30 |
| 2 | 45 |
| 3 | 55 |
| 4 | 70 |
| 5 | 90 |
| 6 | 120 |
Total Fixed Cost (TFC) Schedule: TFC is constant at Rs 10 for all levels of output, as at zero level of output, TC equals the fixed cost.
Complete Cost Schedules:
| Q | TC | TFC | TVC | AFC | AVC | SAC | SMC |
|---|---|---|---|---|---|---|---|
| 0 | 10 | 10 | 0 | – | – | – | – |
| 1 | 30 | 10 | 20 | 10 | 20 | 30 | 20 |
| 2 | 45 | 10 | 35 | 5 | 17.5 | 22.5 | 15 |
| 3 | 55 | 10 | 45 | 3.33 | 15 | 18.33 | 10 |
| 4 | 70 | 10 | 60 | 2.5 | 15 | 17.5 | 15 |
| 5 | 90 | 10 | 80 | 2 | 16 | 18 | 20 |
| 6 | 120 | 10 | 110 | 1.67 | 18.33 | 20 | 30 |
Explanation
This question tests understanding of cost concepts and their interrelationships. TFC is derived from TC at zero output. TVC = TC - TFC. AFC = TFC/Q, AVC = TVC/Q, SAC = TC/Q, and SMC = ΔTC/ΔQ. At Q=0, AFC, AVC, SAC are undefined due to division by zero, and SMC cannot be calculated as there is no previous output level.
Solution Steps
Step 1: Calculate TFC – At zero output, TC = TFC = Rs 10. TFC remains constant at Rs 10 for all output levels.
Step 2: Calculate TVC – TVC = TC – TFC for each output level. Example: At Q=1, TVC = 30 – 10 = Rs 20.
Step 3: Calculate AFC – AFC = TFC/Q. Example: At Q=2, AFC = 10/2 = Rs 5. AFC is undefined at Q=0.
Step 4: Calculate AVC – AVC = TVC/Q. Example: At Q=3, AVC = 45/3 = Rs 15. AVC is undefined at Q=0.
Step 5: Calculate SAC – SAC = TC/Q. Example: At Q=4, SAC = 70/4 = Rs 17.5. SAC is undefined at Q=0.
Step 6: Calculate SMC – SMC = ΔTC/ΔQ. Example: At Q=3, SMC = (55-45)/(3-2) = Rs 10. SMC is not calculated at Q=0.