A firm is producing and selling some output at an average variable cost of $8 per...

A firm is producing and selling some output at an average variable cost of $8 per unit and bringing in a total revenue of $400. If the firm is currently indifferent between shutting down and continuing to operate in the short run and has a total fixed cost of $600, what is the firms average total cost?

Expert Solution

The firm is currently indifferent between shutting down and continuing to operate in the short run.

This means that Price per unit = Average Vraiable Cost or we can say that P = AVC = $8.

Quantity = $400 / 8 = 50 units

Total Variable Cost = $8 * 50 = $400

Total Fixed Cost = $600

Total Cost = Total Fixed Cost + Total Variable Cost = $600 + $400 = $1000

Average Total Cost = Total Cost / Output = $1000 / 50 = $20

Rahul Sunny answered 2 years ago

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