Cost schedule of a firm Output Total Fixed cost TFC(N) Total Variable Cost TVC (N) Total Cost TC (N) Average Variable AVC(N) Average Total ATC (N) Marginal ...

We use three formulae. Average Variable Cost \( AVC = \dfrac{TVC}{Q} \), Average Total Cost \( ATC = \dfrac{TC}{Q} \), and Marginal Cost \( MC = \dfrac{\Delta TC}{\Delta Q} \) (the change in total cost when output rises by one unit).

Working

AVC = TVC \( \div \) Output:

• Q = 1: \( 40 \div 1 = 40 \)
• Q = 2: \( 64 \div 2 = 32 \)
• Q = 3: \( 80 \div 3 = 26.67 \)
• Q = 4: \( 88 \div 4 = 22 \)
• Q = 5: \( 96 \div 5 = 19.2 \)

ATC = TC \( \div \) Output:

• Q = 1: \( 140 \div 1 = 140 \)
• Q = 2: \( 164 \div 2 = 82 \)
• Q = 3: \( 180 \div 3 = 60 \)
• Q = 4: \( 188 \div 4 = 47 \)
• Q = 5: \( 196 \div 5 = 39.2 \)

MC = change in TC as output rises by 1 unit:

• Q = 1: \( 140 - 100 = 40 \)
• Q = 2: \( 164 - 140 = 24 \)
• Q = 3: \( 180 - 164 = 16 \)
• Q = 4: \( 188 - 180 = 8 \)
• Q = 5: \( 196 - 188 = 8 \)

Completed schedule

Notice that AVC and ATC both fall as output rises, showing the firm is spreading its fixed cost of N100 over more units and enjoying increasing returns over this range.