Question

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its average variable cost amounts to

Answer 1

average variable cost = $18 per unit

Step-by-step explanation:

total production costs when producing 150 units = average total cost x total output = $24.50 x 150 = $3,675

total variable costs = total production costs - fixed costs = $3,675 - $975 = $2,700

average variable cost = total variable costs / total output = $2,700 / 150 units = $18 per unit