A furniture manufacturing firm operating in the short run produces 20 wooden dining sets. … — JAMB UTME

A furniture manufacturing firm operating in the short run produces $20$ wooden dining sets. At this level of output, the firm's Total Cost ( $\text{TC}$ ) is $\text{₦}800,000$ and its Average Fixed Cost ( $\text{AFC}$ ) is $\text{₦}15,000$ per set. What is the firm's Total Variable Cost ( $\text{TVC}$ )?

A
$\text{₦}300,000$
$\text{₦}500,000$ Answer
C
$\text{₦}785,000$
D
$\text{₦}25,000$

Answer

The firm's Total Variable Cost (TVC) is

\text{₦}500,000

Total Cost (TC) is the sum of Total Fixed Cost (TFC) and Total Variable Cost (TVC). To find TFC, multiply Average Fixed Cost (AFC) by quantity (Q):

\text{₦}15,000 \times 20 = \text{₦}300,000

. Subtracting TFC from TC gives

\text{TVC} = \text{₦}800,000 - \text{₦}300,000 = \text{₦}500,000

Step-by-Step Solution

Calculate Total Fixed Cost (TFC) using Average Fixed Cost (AFC) and total quantity produced (Q)

\text{TFC} = \text{AFC} \times Q = \text{₦}15,000 \times 20 = \text{₦}300,000

Average Fixed Cost is Total Fixed Cost divided by output, so multiplying AFC by Q gives total fixed expenditure.

Subtract Total Fixed Cost (TFC) from Total Cost (TC) to determine Total Variable Cost (TVC)

\text{TVC} = \text{TC} - \text{TFC} = \text{₦}800,000 - \text{₦}300,000 = \text{₦}500,000

In the short run, Total Cost consists of Total Fixed Cost plus Total Variable Cost (

\text{TC} = \text{TFC} + \text{TVC}

Key Concept

Short-run total cost decomposition (TC = TFC + TVC) and fixed cost relationships (TFC = AFC × Q)

Estimated Time:1m 30s

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