Question

Consider a firm that has fixed costs of $300. The firm also faces a marginal cost of $600 for producing the first unit of output, $200 for producing the second unit, and $100 for producing the third unit. What is the average total cost of producing three units of output?

Answer 1

Answer: $400 per unit

Step-by-step explanation:

The total cost of producing all three units is:

= Fixed cost + marginal costs

= 300 + 600 + 200 + 100

= $1,200

The average total cost is:

= 1,200 / Number of units

= 1,200 / 3

= $400 per unit