Consider an industry with two firms producing similar products. Each firm's total cost (in dollars)is given below. Acme Manufacturing: TC = 100 + 3Q
Generic Industries: TC = 500 + 3Q
When each firm is producing the same quantity, Acme's average total cost is:
A)lower than Generic's average total cost.
B)equal to Generic's average total cost.
C)higher than Generic's average total cost.
D)lower than Generic's average total cost at some levels of output, and higher than Generic's average total cost at other levels of output.

Question

Quizplus · Accepted Answer

Both firms have the same variable cost (3Q), and Acme has a lower fixed cost than does Generic. Thus, if they are producing the same level of output, Acme's average total cost will be lower than Generic's average total cost.

Consider an Industry with Two Firms Producing Similar Products