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ECN 1101, The Costs of Production

The document outlines the cost structure for a small t-shirt manufacturing company, detailing fixed and variable costs associated with producing customized shirts. It includes a table for calculating Total Fixed Cost, Total Cost, Average Fixed Cost, Average Variable Cost, Average Total Cost, and Marginal Cost for varying quantities. Additionally, it poses questions regarding the impact of taxes on marginal cost and the relationship between production quantity and average total cost.

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11 views1 page

ECN 1101, The Costs of Production

The document outlines the cost structure for a small t-shirt manufacturing company, detailing fixed and variable costs associated with producing customized shirts. It includes a table for calculating Total Fixed Cost, Total Cost, Average Fixed Cost, Average Variable Cost, Average Total Cost, and Marginal Cost for varying quantities. Additionally, it poses questions regarding the impact of taxes on marginal cost and the relationship between production quantity and average total cost.

Uploaded by

josefvillacampa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Understanding the Costs of Production

Suppose you are the owner of a small t-shirt manufacturing company and one of your
customers buys your service and ask you to produce 10 customized shirts.

Quantity TFC TVC TC AFC AVC ATC MC

0 0 - - - -

1 300
2 500
3 600
4 650
5 750
6 950
7 1,250
8 1,650
9 2,150
10 2,750

1.) Suppose the only fixed cost of your small company is the monthly insurance worth P
500.00 a month.

2.) Find the values for Total Fixed Cost (TFC), Total Cost (TC), Average Fixed Cost (AFC),
Average Variable Cost (AVC), Average Total Cost (ATC) and the Marginal Cost (MC)
for each unit of quantity. (Fill in the blanks of the above table.)

3.) Graph the data for AFC, AVC, ATC and MC. Use a separate sheet and refer to the
book for the values used on each axis.

4.) At which points in your AFC, AVC and ATC does the MC curve intersect?

5.) What have you observed with your average total cost curve as you increase the
number of units you produce? Explain your answer.

6.) Suppose that the government will ask you to pay P 500.00 as a tax just because you
produce something. What happens to your marginal cost? Explain your answer.

7.) Now, assuming that the government will ask you to pay P10.00 per unit of good
produced, what happens to your marginal cost? Explain your answer.

8.) Profit (π) = Total Revenue – Total Cost. Suppose that the price of each shirt is worth P
800.00, how much is your accounting profit? Your economic profit?

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