The average total cost of producing laptop computers in a factory is $500 at the current output level of 100 units per week. If fixed costs equal $10 000, which of the following statements regarding cost is accurate?
A) Average variable cost equals $400.
B) Average fixed cost equals $10 000.
C) Variable cost equals $50 000 per week.
D) Total cost equals $60 000 per week.

Question

Quizplus · Accepted Answer

To find the average variable cost, we need to subtract the fixed cost from the total cost and then divide by the number of units produced:

Total cost = Fixed cost + Variable cost 
$500/unit x 100 units/week = $50,000/week (variable cost)

Average variable cost = Variable cost / number of units produced 
= $50,000 / 100 = $500

Average variable cost = $500 - $100 (fixed cost) / 100 units/week 
= $400/ unit

Therefore, the accurate statement is that the average variable cost equals $400 (Option A). Option B is incorrect because the average fixed cost decreases as production increases. Option C is incorrect because the variable cost changes with production, it is not constant. Option D is incorrect because it includes fixed costs twice.

The Average Total Cost of Producing Laptop Computers in a Factory