Question

Zaid's tent company has total fixed costs of 300,000 per year. The firm's average variable cost is 65 for 10,000 tents. At that level of output, the firm's average total costs equal?

Answer 1

To calculate the average total costs for Zaid's tent company, sum the total fixed costs and variable costs and divide them by the output level, which results in $95 per tent.

Step-by-step explanation:

The question asks about calculating the average total costs for Zaid's tent company. To find the average total costs, we need to sum the total fixed costs and total variable costs and then divide by the number of tents produced.

The total fixed costs are given as $300,000 per year. The total variable cost for 10,000 tents is $65 x 10,000 which equals $650,000. The average total cost (ATC) is then calculated by dividing the sum of total fixed costs and total variable costs by the output level:

1. Total Fixed Costs (TFC) = $300,000
2. Total Variable Costs (TVC) = $65 x 10,000 = $650,000
3. Total Costs (TC) = TFC + TVC = $300,000 + $650,000 = $950,000
4. Output level (Q) = 10,000 tents
5. Average Total Costs (ATC) = TC / Q = $950,000 / 10,000 tents = $95 per tent

Therefore, at an output level of 10,000 tents, the firm's average total costs equal $95 per tent.