Question

Suppose average variable cost (avc) of producing 5 units is $30, and average total cost (atc)...

Suppose average variable cost (avc) of producing 5 units is $30, and average total cost (atc) of producing 5 units is $50. What is the fixed cost for this firm?

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Answer #1

Output given in the question = 5 units

At this output, average variable cost = $30

Therefore, the total variable cost will be = $30 * 5 = $150 (TVC = AVC*No. of units)

At this output, average total cost = $50

Therefore, the total cost will be = $50 * 5 = $250 (TC = ATC * No. of units)

Total Cost = TFC + TVC

TFC = TC - TVC

TFC = $250 - $150 = $100

Fixed cost for this firm will be $100.

Alternatively, calculate the AFC

AFC = ATC - AVC

AFC = $50 - $30 = $20

AFC = TFC/Quantity

$20 = TFC/5

TFC = $100

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