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At the end of the year, a firm produced 20,000 laptop computers
At the end of the year, a firm produced 20,000 laptop computers. Its total costs were $10 million, and its fixed costs were $55 million. What are the average variable costs (to the nearest dollar) of this firm?
Expert Solution
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- I assumed the fixed cost was $5.5 million since $55 million did not make sense because the total cost was only $10 million.
At the end of the year, a firm produced 20,000 laptop computers. Its total costs were $10 million, and its fixed costs were $55 million. What are the average variable costs (to the nearest dollar) of this firm? $225.
As noted above, the total cost is equal to the sum of the fixed and variable costs, so the total variable cost was $4.5 million. The average variable cost is, therefore, equal to the total variable cost ($4.5 million) divided by the quantity (20,000).
TC=VC+FC10,000,000=VC+5,500,000VC=4,500,000soAVC=VCQAVC=4,500,00020,000AVC=225
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