Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20 per labor unit; and price paid for raw materials = $8 per raw-material unit. If the firm can produce 2,000 units of output by combining its fixed capital with 200 units of labor and 500 units of raw materials, what are the total cost (TC) and average total cost (ATC) of producing the 2,000 units of output?

Question

Quizplus · Accepted Answer

The total cost (TC) is calculated by adding the cost of capital, labor, and raw materials: TC = $4,000 + (200 units * $20) + (500 units * $8) = $12,000. The average total cost (ATC) is the total cost divided by the quantity of output: ATC = $12,000 / 2,000 units = $6.00.

Assume a Firm Faces These Costs: Total Cost of Capital