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Fact 13.3.3
Suppose that Roots' marginal cost of a jacket is a constant $125.00 and the total fixed cost at one of its stores is $1,500 a day.This store sells 20 jackets a day,which is its profit-maximizing number of jackets.Then the stores nearby start to advertise their jackets.The Roots store now spends $2,000 a day advertising its jackets,and its profit-maximizing number of jackets sold jumps to 70 a day.
-Refer to Fact 13.3.3.Before the advertising begins,the average total cost of a jacket sold in this store is

Question

Quizplus · Accepted Answer

Before the advertising begins, the average total cost (ATC) of a jacket can be calculated by adding the total fixed cost (TFC) and total variable cost (TVC), then dividing by the quantity sold. The TFC is $1,500, and since the marginal cost (MC), which is also the variable cost per unit, is $125 and 20 jackets are sold, the TVC is $125 * 20 = $2,500. Therefore, the total cost (TC) is $1,500 (TFC) + $2,500 (TVC) = $4,000. Dividing the TC by the quantity gives the ATC: $4,000 / 20 = $200.

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