A firm produces 100 units of output at an average variable cost of $5 and incurs a total fixed cost of $700. Which of the following is true?
A) The firm's average total cost is $12.
B) The firm's total variable cost is $1,200.
C) The firm's marginal cost is constant and equal to $5.
D) The firm's average fixed cost is $5.
E) The firm's total cost is $500.

Question

Quizplus · Accepted Answer

To find the firm's average total cost, we need to add the total fixed cost ($700) to the total variable cost. The total variable cost can be found by multiplying the average variable cost ($5) by the number of units produced (100). Therefore, the total variable cost is $500. Adding this to the fixed cost gives us a total cost of $1,200. Dividing this by the number of units produced (100) gives us an average total cost of $12. Therefore, option A is the correct choice.

A Firm Produces 100 Units of Output at an Average