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You run a small business producing picture frames
You run a small business producing picture frames. This month your total cost of production is $10,000, your variable cost of production is $5,000, and you produce 5000 picture frames. It follows that
A. average variable cost is $2.
B. average fixed cost is $1.
C. average cost is $1.
D. average cost is $3.
Expert Solution
The correct answer is B. average fixed cost is $1.
Below is the calculation of the fixed cost of production and average costs for this firm.
Fixed cost=Total cost−Variable cost=$10,000−$5,000=$5,000Fixed cost=Total cost−Variable cost=$10,000−$5,000=$5,000
Average fixed cost=Fixed costOutput=$5,0005,000=$1Average fixed cost=Fixed costOutput=$5,0005,000=$1
Average variable cost=Variable costOutput=$5,0005,000=$1Average variable cost=Variable costOutput=$5,0005,000=$1
Average total cost=Total costOutput=$10,0005,000=$2
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