Question

1. If average fixed cost is 40 and average variable cost is 80 for a given output, we then know that average total cost is

Answer 1

120

Step-by-step explanation:

Average total cost = average fixed cost + average variable cost

average fixed cost = Total fixed cost / quantity

40 + 80 = 120

Fixed costs are costs that do not vary with output. e,g, rent, mortgage payments

average variable cost = total variable cost / quantity

Variable costs are costs that vary with production. Hourly wage costs and payments for production inputs are examples of variable costs