For the sake of simplification the cost involved in the pizza store example above is $800 interest or installment payment for 2 pizza ovens per week to the bank (Fixed Cost), and cost of paying salaries to the workers, which is $650 per worker (Variable Cost).

Use the above information tofill Fixed Cost and Total Variable Cost columns. And, use the relationship explained below tofill the rest of the columns. Then, use Total Quantity, Fixed Cost, Average Variable Cost, Marginal Cost, and Average Total Cost todraw a graph, where Total Quantity will be in the horizontal axis, and the rest of the variables will be in the vertical axis.

Fixed Cost: In the short-run, this remains fixed. Irrespective of the amount produced you have to pay rent, pay interest and installments to the bank etc.

Total Variable Cost: Changes as you hire more workers or buy more ingredients to produce more output.

Total Cost: Fixed Cost + Total Variable Cost

Average Variable Cost: Total Variable Cost per unit of output, found by dividing Total Variable Cost by quantity produced.

Marginal Cost: is the change in a firm's Total Cost from producing one more unit of a good, found by dividing change in Total Cost by change in Quantity Produced:

Average Total Cost: Total Cost per unit of output, found by dividing Total Cost by quantity produced.

# of Quantity Fixed Total Total Cost Average Workers of pizza Average Marginal Cost* Variable Variable Total Cost * Cost* per week* Cost Cost* 0 0 1 200 2 450 3 550 4 600 5 625 6 640