Question

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.

Answer 1

$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