COST OF PRODUCTION SCHEDULE

All the different cost concepts discussed are interrelated in a number of ways. They can easily be computed or calculated mathematically with the aid of their various formulae.

The cost concepts are better interpreted and understood when they are arranged in a schedule called the cost of production schedule. Any missing figure(s) can be calculated or filled up using other cost values and their respective formulae.

Mathematical Approach to Costs

Example 1: Complete the following cost schedule and answer the questions that follow.

1. At what output is AC at the minimum?
2. At what output is MC at the minimum?
3. At what output does AC start increasing?
4. At what output does MC start to be greater than AC?
5. What is the maximum output?

TC = AC x output

a = output 3

TC = AC x output = 6 x 3

TC or ‘a’ = 18.

b = TC = 6 × 5

b= TC = 30.

c = AC = TC ÷ Output = 14÷2 = 7.

d = AC = 20÷4 = 5.

f = MC at output 2

TC 2 – TC = 14 – 8 = 6.

g= MC at output 3 = 18 – 14 = 4.

h= MC at output 4 = 20 – 18 = 2.

i= MC at output 5 = 30 – 20 = 10.

j = MC at output 6 = 48 – 30 = 18.

1. Output 4 units.
2. Output 4 units.
3. Output 5 units.
4. Output 5 units.
5. Maximum output is 6 units.

From the cost schedule in the table below, calculate the average variable cost (AVC), average total cost (ATC) and marginal cost (MC) of the firm.