Question

Assume that a profit-maximizing, perfectly competitive firm is producing at the breakeven point. The firms output is 10 units and the market price is $150. The firm has $400 in sunk cost and total fixed cost of $800. What is the total variable cost of this firm equal to

Answer 1

If the firm is producing at the breakeven point, it means that it is covering its total costs, including both fixed costs and variable costs. Since the total fixed cost is $800 and the firm has $400 in sunk costs, the total variable cost can be calculated by subtracting the sum of these costs from the total cost.

Total variable cost = Total cost - Total fixed cost - Sunk cost
Total variable cost = $800 - $800 - $400
Total variable cost = $0

Therefore, the total variable cost of this firm is equal to $0.