Question

A perfectly competitive firm sells 15 units of output at the going market price of $10. Suppose its average fixed cost is $15 and its average variable cost is $8. Its contribution margin (i.e., contribution to fixed cost) is

Answer 1

$30

Step-by-step explanation:

The computation of the contribution margin is shown below:

Contribution margin = Sales - Variable cost

where,

Sales = Units sold × Market price

= 15 units × $10

= $150

And,

Variable cost = Units sold × AVC

= 15 units × $8

= $120

Now placing these values to the above formula

= $150 - $120

= $30

We simply applied the above formula