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Allstate Heating Company has $12,000 fixed costs each week. Its total variable costs change as the number of water heaters produced each week changes, as
- Allstate Heating Company has $12,000 fixed costs each week. Its total variable costs change as the number of water heaters produced each week changes, as follows: (30 points)
Water Heaters | Total Variable Cost |
1 | $600 |
2 | 1,800 |
3 | 3,600 |
4 | 6,000 |
5 | 9,000 |
6 | 12,600 |
7 | 16,800 |
8 | 21,600 |
9 | 27,000 |
10 | 33,000 |
- For each level of output, calculate total cost, marginal cost, average fixed cost, average variable cost and average total cost. (10pt)
- Using Microsoft Excel, create one graph showing the marginal cost, average fixed cost, average variable cost and average total cost. (10pt)
- Explain why the average total cost curve has a U shape, when neither of its components, average fixed cost nor average variable cost, does. (5pt)
- Allstate paid $5,000 for researching the area before setting up its business location. How does this cost figure into its costs of production? (5pt)
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