Question

Ted's Lawn Care has total fixed costs of $200,000, total variable costs of $150,000, and an output of 25,000 units. What is Ted's Lawn Care's average fixed cost?

Answer 1

$ 8 per unit of output

Step-by-step explanation:

Average fixed cost is defined as fixed cost incurred per unit of output.

Given,

Total Fixed cost = $200,000

Total Variable Cost = $ 150,000

Output level = 25000 units

Average fixed cost can be computed as follows

Average fixed cost =
`(Total\ Fixed\ Cost)/(No.\ of\ units)` =
`(200000)/(25000)` = $ 8 per unit of output

Fixed costs refer to those costs which do not change in quantum irrespective of the level of output. For example rent of the factory premises.