If at optimum output of 1,000 units, the firm is incurring average variable cost per unit of $3, average fixed cost per unit of $1.50, and selling its output at $7 per unit, total profit is
A)$7,000.
B)$2,500.
C)$1,500.
D)$250.

Question

Quizplus · Accepted Answer

Total profit can be calculated by subtracting total cost from total revenue. Total revenue is price per unit times quantity sold, which is $7 * 1,000 = $7,000. Total cost is the sum of total variable cost and total fixed cost. Average variable cost per unit is $3, so total variable cost is $3 * 1,000 = $3,000. Average fixed cost per unit is $1.50, so total fixed cost is $1.50 * 1,000 = $1,500. Therefore, total cost is $3,000 + $1,500 = $4,500. Subtracting total cost from total revenue gives a profit of $7,000 - $4,500 = $2,500.

If at Optimum Output of 1,000 Units, the Firm Is