Question

Suppose that a firm produces 10 units of output. Its Average Variable Cost (AVC) = $25, Average Fixed Cost (AFC) = $5, and Marginal Cost (MC) = $30. The firm's ________.

a.) Total cost is $300

b.)Average total cost (ATC) is $60

c.) Average total cost (ATC) is $35

d.)Total cost is $30

Answer 1

Given, Output = 10 , Average Variable Cost = $25 , Average Fixed Cost = $5, Marginal Cost = $30

Total Cost = Total Variable Cost + Total Fixed Cost

-Total Variable Cost = Average Variable Cost * Output

Total Variable Cost = $25 * 10 = $250

Total Variable Cost = $250

-Total Fixed Cost = Average Fixed Cost * Output

Total Fixed Cost = $5 * 10 = $50

Total Fixed Cost = $50

So,

• Total Cost = $250 + $50 = $300
• Average Total Cost = TC / Output = 300/10 =$30

A). Our total cost is $300 as we can see in the above calculations. Hence, this option is correct.

B). This option is incorrect as our average total cost is $30, not $60 as given in this option.

C). This option is again incorrect as our average total cost is $30, not $35 as given in this option.

D). This Option is incorrect as our total cost is $300, not $30 as given in this option.