With fixed costs of $400, a firm has average total costs of $3 and average variable costs of $2.50. Its output quantity must be
A)200 units.
B)400 units.
C)800 units.
D)1,600 units.

Question

Quizplus · Accepted Answer

Average total cost (ATC) is the sum of average fixed cost (AFC) and average variable cost (AVC). Given ATC = $3 and AVC = $2.50, AFC = $0.50. Since AFC = Fixed Costs / Quantity, $0.50 = $400 / Quantity, solving gives Quantity = 800 units.

With Fixed Costs of $400, a Firm Has Average Total