Answer:
AVERAGE FIXED COST
1 200
2 100
3 66.7
4 50
5 40
6 33.3
7 28.6
AVERAGE VARIABLE COST
1 10
2 10
3 13.3
4 20
5 32
6 53.3
7 91.4
AVERAGE TOTAL COST
1 210
2 110
3 80
4 70
5 72
6 86.7
7 120
The efficient scale is 4 houses per month
Explanation:
Calculation for the average fixed cost, average variable cost, and average total cost for each quantity
First step is to calculate the Variable Cost,Fixed Cost and Total cost
Quantity Variable Cost Fixed Cost Total cost
$0 $200 $200 $200
1 10 +200=210
2 20 +200=220
3 40 +200=240
4 80 + 200=280
5 160 +200=360
6 320 +200=520
7 640+ 200=840
Now let calculate the average fixed cost, average variable cost, and average total cost for each quantity
Calculate AVERAGE FIXED COST
Quantity Fixed Cost AVERAGE FIXED COST
$0 $200 ---
1 200=200 (200/1)
2 200=100 (200/2)
3 200=66.7 (200/3)
4 200=50 (200/4)
5 200=40 (200/5)
6 200=33.3 (200/6)
7 200=28.6 (200/7)
Calculate for AVERAGE VARIABLE COST
Quantity Variable Cost AVERAGE VARIABLE COST
$0 $200 ---
1 10 =10 (10/1)
2 20=10 (20/2)
3 40 =13.3 (40/3)
4 80=20 (80/4)
5 160 =32 (160/5)
6 320=53.3 (320/6)
7 640=91.4 (640/7)
Calculation for AVERAGE TOTAL COST
Quantity Total cost AVERAGE TOTAL COST
$0 $200 -----
1 210 =210 (210/1)
2 220 =110 (220/2)
3 240=80 (240/3)
4 280=70 (280/4)
5 360=72 (360/5)
6 520=86.7 (520/6)
7 840=120 (840/7)
Based on the above Calculation The efficient scale is 4 houses per month reason been that it has the lowest Average total cost of 70 therefore minimizing the Average total cost.
