The above table gives the total cost schedule for oil changes at the local Jiffy Lube
a. What is Jiffy Lube's total fixed cost?
b. What is the total variable cost of 2 oil changes?
c. What is the average variable cost of 4 oil changes?
d. What is the average fixed cost of 2 oil changes?
e. What is the marginal cost of the 3rd oil change?
a. The total fixed cost is $10. At zero output, the total variable cost is $0, so the entire cost, $10, must be the fixed cost.
b. The total variable cost of 2 oil changes is $25. The total cost, TC, is $35 and from part (a) the total fixed cost, TFC, is $10. The total variable cost, TVC, is equal to TC - TFC or $35 - $10 = $25.
c. The average variable cost for 4 oil changes is $17.50. Start similarly to part (b) by calculating that the total variable cost, TVC, for 4 oil changes is $70. Then, the average variable cost, AVC, equals the total variable cost divided by output, or TVC ÷ Q. In this case, the AVC is equal to $70 ÷ 4 = $17.50.
d. The average fixed cost of 2 oil changes is $5. The average fixed cost, AFC, equals the total fixed cost divided by output, or TFC ÷ Q. From part (a), the total fixed cost is $10, so the average fixed cost equals $10 ÷ 2 = $5.
e. The marginal cost is $15. Marginal cost is defined as the change in the total cost that results from a one-unit increase in output. The total cost of 2 oil changes is $35 and the total cost of 3 oil changes is $50. Therefore the change in the total cost is $15, which is the marginal cost.
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