Question

The Toys-R-Us Toy Company can produce 500 water pistols for a total cost of $1,400. If the variable cost of producing 500 water pistols is $1,300 then

A. fixed cost must be $100
B. marginal cost must be $1,300
C. marginal cost must be increasing
D. average variable cost must be decreasing

Answer 1

The Correct option is Option A.

Step-by-step explanation:

Total quantities of water pistols produced = 500 units.

Total costs incurred during production =$1400.

Variable costs of producing the 500 units of water Pistols = $ 1300.

But we know that:

Total cost = Fixed Costs + Variable Costs.

Therefore:

$ 1400 = Fixed Costs + $1300.

Fixed Costs = $ 1400 - $1300.

Fixed is $100.