A Simple Example: A Small Parcel-Sorting Operation
A sorting station pays €4 per shift for equipment (fixed cost) and €1 per parcel for basic handling. It can process up to 4 parcels efficiently; beyond that, congestion and overtime add increasing variable costs.
FC = 4
VC(q) = q + 0.5[max(0, q − 4)]2
VC(q) = q + 0.5[max(0, q − 4)]2
AFC = FC / q · AVC = VC / q
ATC = AFC + AVC = (FC + VC) / q
ATC = AFC + AVC = (FC + VC) / q
Average Cost Table
| Parcels (q) | AFC (€) | AVC (€) | ATC (€) |
|---|---|---|---|
| 1 | 4.00 | 1.00 | 5.00 |
| 2 | 2.00 | 1.00 | 3.00 |
| 3 | 1.33 | 1.00 | 2.33 |
| 4 | 1.00 | 1.00 | 2.00 |
| 5 | 0.80 | 1.10 | 1.90 |
| 6 | 0.67 | 1.33 | 2.00 |
| 7 | 0.57 | 1.64 | 2.21 |
| 8 | 0.50 | 2.00 | 2.50 |
| 9 | 0.44 | 2.39 | 2.83 |
| 10 | 0.40 | 2.80 | 3.20 |
Average Cost Curves
AFCAVCATC