Question

Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1.00 per poster. She has fixed costs of $250.00. Her variable costs are $1,500 for the first thousand posters, $1,200 for the second thousand, and then $800 for each additional thousand posters.What is her AFC per poster if she prints 1,000 posters?

Answer 1

Here's the formulas you will need: 

AFC = FC / Quantity printed 

So given she prints 1,000 posters: AFC = 250.00/1000 = $0.25 
Given she prints 2,000 posters: AFC = 250.00/2000 = $0.125 
Given she prints 10,000 posters: AFC = 250.00/2000 = $0.025 

ATC = TC / Quantity printed 

where TC = FC + Variable C * Quantity printed 

If she prints 1000: TC = 250 + 2000*1000 = 2,000,250 
ATC = 2,000,250/1000 = 2000.25 

If she prints 2000: TC = 250 + 1600*2000 = 3,200,250 
ATC = 3,200,250/2000 = 1600.125 

If she prints 10000: TC = 250 + 1600*2000 + 1000*8000 ($1000 for each additional poster after 2000) = 11,200,250 
ATC = 11,200,250/10000 = 1120.025