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If at optimum output of 1,000 units, the firm is incurring average variable cost per unit of $3, average fixed cost per unit of $1.50, and selling its output at $7 per unit, total profit is Group of answer choices $1,500. $2,500. $250. $7,000.

1 Answer

5 votes

Answer:

$2500

Step-by-step explanation:

Given: Total output(quantity)= 1000 units.

average variable cost per unit= $3

Average fixed cost per unit= $1.5

Selling price per unit is $7

We know, Profit=
Total\ revenue - Total\ cost

First, lets find out total cost

Total cost=
Total\ fixed\ cost+ Total\ variable\ cost

Remember, cost=
average\ cost* quantity


Fixed\ cost= \textrm{average fixed cost per unit}* quantity


Fixed\ cost= 1.5* 1000= \$ 1500


Variable\ cost= \textrm{average variable cost per unit}* quantity


Variable\ cost= \$ 3* 1000= \$ 3000

Total cost=
1500+ 3000=
\$4500

Now, finding total revenue.


Total\ revenue= selling\ price* quantity


Total\ revenue= \$ 7* 1000= \$ 7000.

Profit=
Total\ revenue - Total\ cost

∴ Total profit=
\$ 7000-\$ 4500= \$2500

Total profit= $2500

User Grant Lammi
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