Question

A) When output is 50, fixed costs are $1,000, and variable costs are $2,000, what is the average total cost? $20 $40 $60 $80?

B) Economic profit is:

total revenue minus explicit measurable costs.

explicit revenues minus explicit costs.

implicit and explicit revenues minus implicit and explicit costs.

implicit and explicit revenues minus implicit costs.

Answer 1

(A)

Average total cost is calculated by dividing the total cost by the total output produced.

Output produced = 50 units

Fixed cost = $1,000

Variable cost = $2,000

Total cost = Fixed cost + Variable cost

Total cost = $1,000 + $2,000 = $3,000

Calculate the average total cost -

ATC = Total cost/Output produced

ATC = $3,000/50 = $60

Thus,

The average total cost is $60.

(B)

Economic profit refers to the surplus available after total revenue (explicit revenue and implicit revenue) is adjusted for total cost (explicit cost and implicit cost).

So,

Economic profit is implicit and explicit revenues minus implicit and explicit cost.

Hence, the correct answer is the option (3).