Figure 16-1. The figure is drawn for a monopolistically competitive firm.

-Refer to Figure 16-1.If the average variable cost is $13 at the profit-maximizing quantity,and if the firm's profit is $20 at that quantity,then its fixed costs amount to

Question

Figure 16-1. The figure is drawn for a monopolistically competitive firm.
 
-Refer to Figure 16-1.If the average variable cost is $13 at the profit-maximizing quantity,and if the firm's profit is $20 at that quantity,then its fixed costs amount to

Quizplus · Accepted Answer

To find the fixed costs, we need to use the formula: Profit = Total Revenue - Total Cost. Total Cost is the sum of Total Variable Cost and Total Fixed Cost. Given that Profit is $20 and Average Variable Cost is $13, we can calculate Total Variable Cost by multiplying Average Variable Cost by Quantity. Since we don't have the quantity, we use the relationship: Profit = (Price - Average Total Cost) * Quantity. Rearranging gives us Total Fixed Cost = Total Cost - Total Variable Cost. With the given profit and average variable cost, the fixed costs amount to $40.