Assume that a firm's total cost of producing an output of 2,000 units is currently $20,000.If output increases to 2,500 units,total cost increases to $50,000 and the price of inputs and technology remain unchanged.What will be the effect on average total cost?

Question

Quizplus · Accepted Answer

Average total cost (ATC) is calculated by dividing the total cost by the output. 
ATC at 2,000 units: $20,000 / 2,000 = $10 per unit 
ATC at 2,500 units: $50,000 / 2,500 = $20 per unit

The increase in output from 2,000 to 2,500 units causes an increase in ATC from $10 per unit to $20 per unit. Therefore, the correct answer is c) Increase of $10.

Assume That a Firm's Total Cost of Producing an Output