Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced?
A)$4
B)$10
C)$40
D)$135

Question

Quizplus · Accepted Answer

The average variable cost (AVC) is given as $33.75 when four units of output are produced. The total variable cost (TVC) for four units can be calculated as AVC * quantity = $33.75 * 4 = $135. The total cost (TC) at this output level is $175, which includes both variable and fixed costs. The fixed cost (FC) can be found by subtracting the total variable cost from the total cost: FC = TC - TVC = $175 - $135 = $40. This fixed cost remains constant regardless of the output level. When ten units are produced, the average fixed cost (AFC) can be calculated by dividing the fixed cost by the quantity produced: AFC = FC / quantity = $40 / 10 = $4.

Suppose That for a Particular Firm the Only Variable Input