If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost is $700, calculate the firm's average fixed cost of production if it expands output to 25 units.
A)$300
B)$15
C)$12
D)It is impossible to determine without additional information.

Question

Quizplus · Accepted Answer

To calculate the average fixed cost of production, we need to first calculate the total fixed costs, which is the difference between the total cost and the variable cost.

Total fixed costs = Total cost - Variable cost 
Total fixed costs = $1,000 - $700 
Total fixed costs = $300

Now, we can calculate the average fixed cost by dividing the total fixed costs by the level of output:

Average fixed cost = Total fixed costs / Output 
Average fixed cost = $300 / 20 units 
Average fixed cost = $15 per unit

Therefore, if the firm expands output to 25 units, the total fixed costs remain the same at $300, but the average fixed cost decreases:

Average fixed cost = Total fixed costs / Output 
Average fixed cost = $300 / 25 units 
Average fixed cost = $12 per unit

Thus, the answer is C.

If a Firm Produces 20 Units of Output and Incurs