Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 7] COSTS OF PRODUCTION 157
7.4 From Table 7.5, (a) find the AFC, AVC, AC, and MC schedules and (b) plot the AFC, AVC, AC, and
MC schedules of part (a) on one set of axes.
(a) Table 7.6
Q TFC ($) TVC ($) TC ($) AFC ($) AVC ($) AC ($) MC ($)
0 120 0 120
1 120 60 180 120 60.00 180.00 60
2 120 80 200 60 40.00 100.00 20
3 120 90 210 40 30.00 70.00 10
4 120 105 225 30 26.25 56.25 15
5 120 140 260 24 28.00 52.00 35
6 120 210 330 20 35.00 55.00 70
AFC equals TFC divided by output. AVC equals TVC divided by output. AC equals TC divided by output. MC
equals the change in either TVC or in TC per unit change in output.
(b) See Fig. 7-7.
7.5 From the TFC curve in Problem 7.2, derive the AFC curve geometrically and explain its shape.
See Fig. 7-8. AFC equals TFC divided by output. TFC equal $120. Thus, when output is 2, AFC equals $120
divided by 2, or $60. This is equal to the slope of ray OA and is plotted as point A 0 on the AFC curve. At point B on
the TFC curve, the AFC is given by the slope of ray OB. This equals $30 per unit ($120/4 units) and is plotted as
point B 0 on the AFC curve. At point C on the TFC curve, AFC equals the slope of ray OC which is $20, This gives
point C 0 on the AFC curve. Other points on the AFC curve could be similarly obtained.
The AFC curve is asymptotic to both axes. That is, as we move further and further away from the origin along
either axis, the AFC curve approaches but never quite touches the axis. Also, AFC times quantity always gives the
same amount (i.e., the constant TFC). Thus, the AFC curve is a rectangular hyperbola.
Fig. 7-7