Question

Your cousin Vinnie owns a painting company with fixed costs of $200 and the following schedule for variable costs:

Answer 1

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.