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A firm's average variable cost is $90, its total fixed cost is $10,000, and its output is 1,000 units
A firm's average variable cost is $90, its total fixed cost is $10,000, and its output is 1,000 units. Its total cost is
A. more than $105,000.
B. less than $85,000.
C. between $95,000 and $105,000.
D. between $85,000 and $95,000.
Expert Solution
We know that the sum of average variable cost (AVC) and average fixed cost (AFC) is equal to average total cost (ATC). Further we know ATC is equal to total cost (TC) over output (Q). We also know average fixed cost is total fixed cost (TFC) over Q. Thus we get the following:
ATC=AVC+AFCTC/Q=AVC+TFC/QTC/1,000=$90+$10,000/1,000TC/1,000=$90+$10TC/1,000=$100TC=$100,000ATC=AVC+AFCTC/Q=AVC+TFC/QTC/1,000=$90+$10,000/1,000TC/1,000=$90+$10TC/1,000=$100TC=$100,000
Total cost is equal to $100,000 which is between $95,000 and $105,000 and the answer this therefore C.
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