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A firm produces 400 units of output at a total cost of $1,200
A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,
a. average fixed cost is 50 cents,
b. average variable cost is $2,
c. average total cost is $2.50,
d. average total cost is 50 cents.
Expert Solution
- The correct answer is a. average fixed cost is 50 cents.
Let us compute the total fixed cost.
Totalfixedcost=Totalcost−TotalvariablecostTotalfixedcost=1,200−1,000=200Totalfixedcost=Totalcost−TotalvariablecostTotalfixedcost=1,200−1,000=200
The total fixed cost is $200.
Let us compute the average fixed cost.
Averagefixedcost=TotalfixedcostQuantityAveragefixedcost=200400Averagefixedcost=0.5Averagefixedcost=TotalfixedcostQuantityAveragefixedcost=200400Averagefixedcost=0.5
The average fixed cost is 50 cents.
Let us compute the average variable costs.
Averagevariablecost=TotalvariablecostQuantityAveragevariablecost=1,000400Averagevariablecost=2.50Averagevariablecost=TotalvariablecostQuantityAveragevariablecost=1,000400Averagevariablecost=2.50
The average variable cost is $2.50.
Let us compute the average total cost.
Averagetotalcost=Averagefixedcost+AveragevariablecostAveragetotalcost=0.50+2.50Averagetotalcost=3.00Averagetotalcost=Averagefixedcost+AveragevariablecostAveragetotalcost=0.50+2.50Averagetotalcost=3.00
The average total cost is $3.00.
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