A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100, Select one: a. average total cost is $5. b. average fixed cost is $10. c. average total cost is $4. d. average variable cost is $3

d. average variable cost is $3

Explanation:

Average Total Costs = Average Fixed Costs + Average Variable Costs

Average Total Costs = Total Fixed Variable Costs / No of units

= 100/300 + 900/300 = 1000/300 = $ 3.33 (not given)

a. average total cost is $5 ≠ $ 3.33

b. average fixed cost is $10≠$ 0.33

c. average total cost is $4 ≠$ 3.33

d. average variable cost is $3 = $ 3

Average Variable Costs = Total Variable Costs / Total Units = 900/300 = $ 3

Average Fixed Costs = Total Fixed Costs / Total Units = 100/300 = $ 0.33 not also given

Answer: The average variable cost is $3. (D)

Explanation:

A fixed cost is a cost that does not change or varies with production process. Fixed costs are always constant in production. Variable costs are costs that changes with the production process. Variable costs varies and are not constant.

From the information given in the question, the firm produces 300 units of output, has a total cost of $1000 and a fixed cost of $100. A total cost is made up of the fixed and variable cost.

Total cost = Fixed cost+Variable cost

Since total cost is $1000 and fixed cost is $100, variable cost will be $1000 - $100 = $900

Since the firm produces 300 units and variable cost is $900, average variable cost will be: $900/300 = $3

The average variable cost is $3