A firm has the capacity to produce 3,100 units per week. At 80% capacity, the average total cost per unit is $12.50 and the average variable cost per unit is $7.50. What is the total fixed cost per week, assuming the firm is still operating within its relevant range?
A) $12,400
B) $19,375
C) $23,200
D) $15,500

Question

Quizplus · Accepted Answer

The total fixed cost can be calculated by first determining the total cost at 80% capacity and then subtracting the total variable cost at that level. At 80% capacity, the firm produces 2,480 units (80% of 3,100). The total cost at this level is $12.50 per unit * 2,480 units = $31,000. The total variable cost is $7.50 per unit * 2,480 units = $18,600. Therefore, the total fixed cost is $31,000 - $18,600 = $12,400.

A Firm Has the Capacity to Produce 3,100 Units Per