The average total cost of producing cell phones in a factory is $20 at the current output level of 100 units per week. If the fixed cost is $1,200 per week:

A. variable cost is $2,000.

B. average variable cost is $8.

C. total cost is $3,200.

D. average fixed cost is $20.

Option (B) is correct.

Explanation:

Given that,

Average total cost of producing cell phones = $20

Current output level = 100 units per week

Fixed cost = $1,200 per week

Average total cost = (Variable cost + Fixed cost) : Number of units

$20 = (Variable cost + $1,200) : 100

$2,000 = (Variable cost + $1,200)

$2,000 - $1,200 = Variable cost

$800 = Variable cost

Total cost = Variable cost + Fixed cost

= $800 + $1,200

= $2,000

Average variable cost:

= Variable cost : Number of units

= $800 : 100

= $8

Average Fixed cost:

= Fixed cost : Number of units

= $1,200 : 100

= $12

Therefore, the correct answer is: Average variable cost is $8.