A manufacturing firm operates in the short run with a total fixed cost of 150. At an outpu… — JAMB UTME

A manufacturing firm operates in the short run with a total fixed cost of $150. At an output level of$ 5 $units, its Average Variable Cost (AVC) is$ 30. When output increases to $6$ units, its Average Total Cost (ATC) is $55. What is the marginal cost of producing the$ 6^{\text{th}}$ unit?

$30Answer
B
$180
C
$5
D
$55

Answer

$30

At 5 units of output, Total Variable Cost is

30 \times 5 =

150. Adding the Total Fixed Cost of

150 yields a Total Cost of

300. At 6 units, Total Cost is

55 \times 6 =

330. The Marginal Cost of the 6th unit is the difference in Total Cost:

330 -

300 = $30.

Step-by-Step Solution

Calculate Total Variable Cost and Total Cost at 5 units

TVC(5) =

150 and TC(5) =

300

TVC = AVC × Q = 30 × 5 =

150. TC = TFC + TVC = 150 + 150 =

300.

Calculate Total Cost at 6 units

TC(6) = $330

TC = ATC × Q = 55 × 6 = $330.

Calculate Marginal Cost of the 6th unit

MC(6) = $30

MC = TC(6) - TC(5) = 330 - 300 = $30.

Key Concept

Short-Run Marginal Cost and Total Cost Derivation

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