Suppose you know the following facts about the Smith Lamp Factory. When they produce 2,500 lamps, the difference between the average total cost and average variable cost is only $1. If the average variable cost for 5,000 lamps is $8, what is the total cost of producing 5,000 lamps?

Question

Quizplus · Accepted Answer

The difference between average total cost (ATC) and average variable cost (AVC) is the average fixed cost (AFC). Given that the difference is $1 when producing 2,500 lamps, the total fixed cost (TFC) is $2,500 ($1 * 2,500 lamps). For 5,000 lamps, if the AVC is $8, the total variable cost (TVC) is $40,000 ($8 * 5,000). The total cost (TC) is the sum of TFC and TVC, which is $42,500 ($2,500 + $40,000).

Suppose You Know the Following Facts About the Smith Lamp