Suppose that each firm in an industry has a total cost curve given by TC = 7,000 + 50Q. The lowest average total cost of producing 1,000 units of output occurs when:

Question

Quizplus · Accepted Answer

The average total cost (ATC) is calculated by dividing the total cost (TC) by the quantity produced (Q). Given TC = 7,000 + 50Q, the ATC = (7,000/Q) + 50. The ATC decreases as Q increases because the fixed cost (7,000) is spread over more units. Therefore, one firm producing all 1,000 units minimizes the ATC by maximizing the output over which the fixed cost is spread.

Suppose That Each Firm in an Industry Has a Total