(Table: Costs for Birthday Cakes) Annie has a bakery that specializes in birthday cakes, and her variable costs of producing cakes are shown in the table Costs of Birthday Cakes.Assume that her fixed costs are $10.The minimum average variable cost occurs at what output?
A)2
B)3
C)4
D)5

Question

Quizplus · Accepted Answer

To find the minimum average variable cost, we need to calculate the average variable cost at each output level. The formula for calculating average variable cost is AVC = VC/Q, where VC is the total variable cost and Q is the quantity produced.

Using this formula, we can calculate the average variable cost for each output level:

- At Q = 1, AVC = $60/1 = $60
- At Q = 2, AVC = $90/2 = $45
- At Q = 3, AVC = $110/3 = $36.67
- At Q = 4, AVC = $120/4 = $30
- At Q = 5, AVC = $130/5 = $26

The minimum average variable cost occurs at Q = 4, where AVC is $30. Therefore, the best choice is C, producing 4 birthday cakes.

(Table: Costs for Birthday Cakes) Annie Has a Bakery That