Assume the following cost information about Fred's widget company: Its fixed cost is $27,and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5.Given this information:
A) average fixed cost rises from an output of four to an output of five.
B) average fixed cost is greater than marginal cost for the second unit produced.
C) the output level which minimizes average total cost is four units.
D) average variable cost rises, but average total cost falls, as output increases from four to five.

Question

Quizplus · Accepted Answer

Average variable cost increases as output increases from four to five, as the additional unit requires more variable cost per unit. However, at the same time, the increase in output allows for spreading of fixed costs over more units, resulting in a decrease in average total cost. Thus, the answer is D.

Assume the Following Cost Information About Fred's Widget Company: Its