Question

Suppose a firm faces the following costs:

Quantity	0	1	2	3	4	5
TFC	400	400	400	400	400	400
TC	400	600	700	850	1100	1400

    

What is the average variable cost at a quantity of 4 units?

Group of answer choices

175

375

275

100

Answer 1

Total cost is the sum of fixed cost and the variable cost.

So, when the output is 4 units, total cost is 1100 and total fixed cost is 400.

So, total variable cost = total cost - total fixed cost

Total variable cost = 1100 - 400 = 700.

The average variable cost when the quantity is 4 units = Total variable cost / 4 = 700/4 = 175.

So, when the output is 4 units, average variable cost is 175.

So, option 1 is the correct answer.

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