Smith Tire Co. has total fixed costs of $100,000 per year. The firm's average variable cost is $80 for 10,000 tires. At that level of output, the firm's average total costs equal
A) $90
B) $100
C) $110
D) $120

Question

Quizplus · Accepted Answer

Fixed costs are $100,000 per year. For 10,000 tires, the average variable cost is $80 per tire. Total variable costs are $80 * 10,000 = $800,000. Total costs (fixed + variable) are $100,000 + $800,000 = $900,000. Average total costs are $900,000 / 10,000 tires = $90 per tire.