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Tutorial 9 COST Theory answer answer

business management (Kolej Poly-Tech MARA BANGI)

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TOPIC: COST OF PRODUCTION

STRUCTURED QUESTIONS

QUESTION 1

Refer to the following table to answer the following questions

Output Total cost (RM)

0 10
1 20
2 28
3 38
4 53
5 73
6 98

a) The total variable cost of producing 4 units of output is 43.

b) The average total cost of producing 2 units of output is 14.

c) The average fixed cost for producing 5 units of output is 2.

d) The marginal cost of producing the sixth unit of output is 25.

QUESTION 2

Answer the next 4 questions base on the following cost data:

Output (Unit) Total Cost (RM)
0 24
1 33
2 41

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3 48
4 54
5 61
6 69

You are required to calculate:

a) i. Total variable cost of producing 5 units of output.
61-24 = 37

(2 marks)

ii) Average cost of producing 3 units of output.

AC= TC/Q
48/3 = 16

(2 marks)

iii) Average fixed cost of producing 3 units of output.

TFC/Q
24/3
=8
(2 marks)

iv) Marginal cost of producing the sixth unit of output.

(2 marks)
(69-61) / (6-5)

8/ 1

=8

QUESTION 3

The table shows the production cost of the electric company in Nabawan.

TP (unit) AVC (RM) AC (RM) TC (RM) AFC (RM) MC (RM)

0 0 0 500 0 -
1 200 700 700 500 200

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2 150 400 800 250 100

3 183.33 350 1050 166.67 250
4 237.5 362.5 1450 125 400
5 292 392 1960 100 510

Based on the table above, answer the following questions.

i. Complete the table by using the information given. (3 marks)

ii. Is the firm operating in the short run or long run? Why? (2 marks)

- Short Run Cost because the firm have both Fixed cost and Variable Cost.

iii. Give one (1) example of variable input that might be used by the above company.
(1 mark)

- Wages and Raw

QUESTION 4

The following table shows the production cost of a firm.

Below is the cost schedule for producing chocolate cake.

Chocolate Total Total Marginal Average Average Average

cake variable cost cost variable cost fixed cost
(unit) cost cost
0 0 100 - - - -
1 65 165 65 65 165 100
2 84 184 19 42 92 50
3 114 214 57 38 71.33 33.33
4 137 237 23 34.25 59.25 25
5 162 262 25 32.4 52.4 20

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6 189 289 27 31.5 48.167 16.667

a) Complete the table by computing the amount of Total Cost (TC), Total Variable Cost
(TVC), Total Fixed Cost (TFC) and Marginal Cost (MC).

b) Sketch in one diagram to show Average Cost (AC), Average Variable Cost (AVC)
and Marginal Cost (MC)

c) Is the firm operating in short run or long run? Why?

- Short Run Cost because the firm have both Fixed cost and Variable Cost.

QUESTION 5

The table below shows the costs of production of a firm.

Quantity Total Cost Total Variable Average Cost Marginal Cost Average
(TC) Cost (TVC) (AC) (MC) Fixed Cost
(AFC)
0 RM 70 RM 0 - - -
1 160 90 160 90 70
2 200 130 100 40 35
3 250 180 83.33 50 23.33
4 320 250 80 70 17.5
5 410 340 82 90 14

a) Complete the above table.

(4 marks)

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b) Is the firm operating in the short run or long run? Why?

- Short Run Cost because the firm have both Fixed cost and Variable Cost.

(2 marks)

c) Sketch the AFC, AC and MC in one diagram.

(2 marks)

c) Give one (1) example each for variable cost and fixed cost.
- Wages
- Salaries

(2 marks)

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