A Firm Produces 400 Units of Output at a Total

question 226

Multiple Choice

A firm produces 400 units of output at a total cost of $1,200. If fixed costs are $200,

• A)average fixed cost is $2.
• B)average variable cost is $2.50.
• C)average total cost is $4.
• D)average total cost is $5.

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Definitions:

Fixed Costs

Charges that stay the same no matter the scale of production or sales, like rent, salaries, and insurance.

Variable Costs

Expenses that vary depending on the amount of products or services a company generates.

Mixed Cost

A cost that contains both variable and fixed cost elements, changing in total with changes in activity level but not in the same proportion.

Variable Costs

Expenditures that adjust in alignment with production levels or sales quantities, notably including labor and raw materials.