Have you ever worked in a restaurant?

Fixed and Variable Costs
Median income per household
member in the U.S. in 2006 was
in the range from:
1)
2)
3)
4)
5)
6)
7)
8)
$15,000-20,000
$20,000-25,000
$25,000-30,000
$30,000-35,000
$35,000-40,000
$40,000-45,000
$45,000-$50,000
Above $50,000
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?
(1+2+3+4+100)/5=22
Are you satisfied with the
restaurant offerings in Isla Vista?
A)
B)
C)
D)
They are fine.
Not too bad.
Not very good.
Terrible
A firm’s 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)
B)
C)
D)
E)
$4
$10
$14
$40
$50
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.
• That’s $140/10=$14
A firm’s 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)
B)
C)
D)
E)
$4
$10
$14
$40
$50
Why is that?
•
•
•
•
Total costs are $100+4Q.
Fixed costs are $100.
Variable costs are $4Q.
Average variable costs are $4Q/Q=4
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.
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.
And on to our lecture…

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