Question

Miller Technologies has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal:

A. $500
B. $1,000
C. $1,500
D. $2,000

Answer 1

The firm's total fixed costs are calculated by multiplying the average fixed cost per unit by the total output. The average fixed cost per unit is the difference between the average total costs and the average variable costs. For Miller Technologies, producing 500 units with ATC of $3 and AVC of $1, the total fixed costs equal $1,000.

Step-by-step explanation:

To calculate the total fixed costs for Miller Technologies, we need to understand the relationship between average total costs, average variable costs, and total output. The average total cost (ATC) is the sum of the average variable cost (AVC) and the average fixed cost (AFC), and it is calculated as the total cost divided by the total output. As given, Miller Technologies has an ATC of $3 and an AVC of $1 when producing 500 units. The difference between ATC and AVC is the AFC.

To calculate the AFC when 500 units are produced, subtract the AVC from the ATC ($3 - $1 = $2). Then, to find total fixed costs, multiply the AFC by the total output (500 units), which gives us $2 * 500 = $1,000. Therefore, the firm's total fixed costs equal $1,000 (Option B).