Chapter 10R, Problem 14MCQ

To determine

The correct option for given situation.

Answer to Problem 14MCQ

Option a is correct.

Explanation of Solution

Given Information:

Output level is 200 units

Average variable cost is $10 per unit

Total average cost is $15 per unit

Explanation for correct option:

a.

Total average cost is comprised of two costs i.e. average variable cost and average fixed cost. In this question, total average cost is $15 and total variable cost is $10. The fixed cost per unit should be $5. If 200 units are produced then total fixed cost will be $1,000. Therefore, option a is correct.

Explanation for incorrect options:

b.

If total fixed cost will be $2000, then average total cost will be $20 (average fixed cost is $10 and average variable cost is $10) and it is given that total average cost per unit is $15 which is given. Therefore, option b is incorrect.

c.

If total fixed cost will be $3000, then average total cost will be $25 (average fixed cost is $15 and average variable cost is $10) and it is given that total average cost per unit is $15 which is given. Therefore, option c is incorrect.

d.

Marginal cost cannot be determined with the given information. Therefore, option d is incorrect.

e.

Marginal cost cannot be determined with the given information. Therefore, option e is incorrect.

Economics Concept Introduction

Average total cost: Average total cost of production per unit is comprised of two cost components that is average fixed cost and average variable cost. In short-run, fixed cost of the production remains similar.