Final answer:
Calculating costs such as AFC, AVC, ATC, and MC is essential in business economics to determine the profit-maximizing output level. These calculations require specific data, which was not provided for Len's birdhouse factory. Generally, these costs help businesses analyze their financial performance and make informed production decisions.
Step-by-step explanation:
The question provided pertains to calculating various cost measures for a hypothetical scenario involving Len's birdhouse factory, in the context of a business economics problem. However, the provided reference information concerning AAA Aquarium Co. and other businesses is not directly related to Len's birdhouse factory scenario. Therefore, we will use the method illustrated in the examples to explain how Len would calculate average fixed cost, average variable cost, average total cost, and marginal cost in general terms, as specific numerical details about the number of units or the number of students hired are not given.
Calculation of Costs
- Average Fixed Cost (AFC): AFC is calculated by dividing the total fixed costs by the number of units produced. Since fixed costs remain constant regardless of output, as the number of units increases, the AFC decreases.
- Average Variable Cost (AVC): AVC is found by dividing the total variable costs by the number of units produced. It varies with the level of output.
- Average Total Cost (ATC): ATC is the sum of AFC and AVC, and it can also be calculated by dividing the total cost (fixed plus variable) by the number of units produced.
- Marginal Cost (MC): MC is the increase in total cost that arises from producing one additional unit of output. It is calculated by the change in total cost when one extra unit is produced.
To find the profit-maximizing quantity of output, one would look for the output level where marginal revenue (the additional revenue from selling one more unit) equals the marginal cost. Without specific data for Len's birdhouse factory, we cannot provide a numerical answer for the given scenario. However, using the examples provided as a guide, we can sketch the total revenue and total cost curves to determine the point where total profit is maximized when the two curves intersect. Similarly, the marginal revenue and marginal cost curves would be sketched, and the profit-maximizing quantity is where MR equals MC.