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?

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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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