A firm produces 10 widgets that they sell for $15 each. The average variable cost for the production of 10 widgets is $13/unit. The fixed costs for this firm equal $20. What is the value of this firm's profits?
A) -$20
B) -$2
C) 0
D) $20

Question

Quizplus · Accepted Answer

To calculate the profit for this firm, we need to use the formula:

Profit = Total revenue - Total cost

Total revenue = Selling price per unit x Quantity sold 
Total revenue = $15/unit x 10 units 
Total revenue = $150

Total cost = Fixed cost + Variable cost 
Variable cost = Average variable cost per unit x Quantity sold 
Variable cost = $13/unit x 10 units 
Variable cost = $130

Total cost = Fixed cost + Variable cost 
Total cost = $20 + $130 
Total cost = $150

Profit = Total revenue - Total cost 
Profit = $150 - $150 
Profit = $0

Therefore, the value of this firm's profits is $0.

A Firm Produces 10 Widgets That They Sell for $15