If a firm produces 20 units of output and incurs a total cost of $1000, and the variable cost is $700, what is 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, we need to subtract the variable cost from the total cost to get the fixed cost.

Fixed cost = Total cost - Variable cost
Fixed cost = $1000 - $700
Fixed cost = $300

Now we can calculate the average fixed cost per unit:

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

If the firm expands output to 25 units, the fixed cost remains the same at $300, so the average fixed cost per unit decreases:

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

If a Firm Produces 20 Units of Output and Incurs