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Fixed and Variable Costs. Median income per household member in the U.S. in 2006 was in the range from: 1)$15,000-20,000 2)$20,000-25,000 3)$25,000-30,000.

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Presentation on theme: "Fixed and Variable Costs. Median income per household member in the U.S. in 2006 was in the range from: 1)$15,000-20,000 2)$20,000-25,000 3)$25,000-30,000."— Presentation transcript:

1 Fixed and Variable Costs

2 Median income per household member in the U.S. in 2006 was in the range from: 1)$15,000-20,000 2)$20,000-25,000 3)$25,000-30,000 4)$30,000-35,000 5)$35,000-40,000 6)$40,000-45,000 7)$45,000-$50,000 8)Above $50,000

3 What was it? Median income per household member was about $26,000. How does that square with per capita income of $42,000. Why is median different from mean? Consider incomes 1, 2, 3, 4, 100 What is median? 3 What is mean? ( )/5=22

4 Are you satisfied with the restaurant offerings in Isla Vista? A)They are fine. B)Not too bad. C)Not very good. D)Terrible

5 A firms total costs are $100+4Q where Q is the number of units produced. If this firm produces 10 units, its average total cost is A)$4 B)$10 C)$14 D)$40 E)$50

6 Why is that? Total costs are $100+4Q. Total cost of producing 10 units is $140=$100+4x10. Average cost is total cost divided by number of units. Thats $140/10=$14

7 A firms total costs are $100+4Q where Q is the number of units produced. If this firm produces 10 units, its average variable cost is A)$4 B)$10 C)$14 D)$40 E)$50

8 Why is that? Total costs are $100+4Q. Fixed costs are $100. Variable costs are $4Q. Average variable costs are $4Q/Q=4

9 A firm has already incurred fixed costs of $120. It has variable costs of $10 per unit and a capacity of 12 units. It faces a competitive market with price p. It should sell A)12 units if p>$10 and no units if p<10. B)12 units if p>$20 and no units if p<$20. C)12 units if p>$10 and 6 units if p<$10.

10 Why is that? Fixed costs are sunk. Nothing can be done about them. Firm does best it can. This means sell up to capacity if price is bigger than marginal cost of $10.

11 And on to our lecture…


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