Question

If a firm produces 10 units of output and incurs $30 in average variable cost and $35 in average total cost, total fixed cost is:

a) $3
b) $35
c) $50
d) $300

Answer 1

The average fixed cost is calculated by subtracting the average variable cost from the average total cost. Multiplying the average fixed cost by the number of units produced yields the total fixed cost. In this case, the total fixed cost is $50.

Step-by-step explanation:

To find out the total fixed cost, we need to understand the relationship between average variable cost (AVC), average total cost (ATC), and the number of units produced. The difference between ATC and AVC gives us the average fixed cost (AFC), which can then be multiplied by the quantity of output to find the total fixed cost (TFC).

The formula to find the average fixed cost (AFC) is:

AFC = ATC - AVC

Given that the firm produces 10 units of output, incurs $30 in average variable cost, and $35 in average total cost, we calculate the average fixed cost as follows:

AFC = $35 - $30 = $5

Now, to find the total fixed cost, we multiply the AFC by the number of units:

TFC = AFC × Quantity

TFC = $5 × 10 = $50

Therefore, the total fixed cost is $50.