The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $10 for 10,000 widgets. At that level of output, the firm's average total costs equal
A)$10
B)$15
C)$20
D)$25

Question

Quizplus · Accepted Answer

Total cost = Total fixed cost + Total variable cost
Total variable cost = Average variable cost x Quantity
At 10,000 widgets, the total variable cost is:
Total variable cost = $10 x 10,000 = $100,000
Therefore, the total cost is:
Total cost = $100,000 (fixed cost) + $100,000 (variable cost) = $200,000
Average total cost = Total cost / Quantity
Average total cost = $200,000 / 10,000 = $20
Therefore, the answer is choice C, $20.

The Wacky Widget Company Has Total Fixed Costs of $100,000