Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal
A)$2.
B)$4.
C)$1,000.
D)$2,000.

Question

Quizplus · Accepted Answer

We know that when the firm produces 500 units of output, its average total costs are $3. We also know that its average variable costs are $1. Therefore, its average fixed costs must be:

Average Total Costs = Average Fixed Costs + Average Variable Costs

$3 = Average Fixed Costs + $1

Average Fixed Costs = $2

To find the total fixed costs, we need to multiply the average fixed costs by the level of output.

500 units X $2 = $1,000

Therefore, the total fixed costs are $1,000.

Brady Industries Has Average Variable Costs of $1 and Average