Suppose that a firm's total costs of production are 0 at an output of zero, 10 at an output of 1, 20 at an output of 2 units, 30 at an output of three units, 35 at an output of four units and 37 at an output of five units. At which number of units is average cost minimized?
A)The first unit.
B)The fifth unit.
C)The third unit.
D)At the first, second and third units.

Question

Quizplus · Accepted Answer

The average cost is minimized at the point where the total cost divided by the number of units is the lowest. Calculating the average cost for each output level: 1 unit = 10/1 = 10, 2 units = 20/2 = 10, 3 units = 30/3 = 10, 4 units = 35/4 = 8.75, 5 units = 37/5 = 7.4. The average cost is lowest at 5 units.

Suppose That a Firm's Total Costs of Production Are 0