Question

The Wacky Widget company has total fixed costs of $100,000 per year. The firm’s average variable cost is $10 for 10,000 widgets. At that level of output, the firm’s average total costs equala. $10 b. $100c. $150 d. $15

Answer 1

$20

Step-by-step explanation:

Average total cost (AC) equals summation of average variable cost (AVC) and average fixed cost (AFC). Average fixed cost is calculated by division of total fixed cost (TFC) by number of widgets (N)

AC=AVC+AFC= AVC-TFC/N = $10+ $100,000/10,000 = $20