Question

Ted's Lawn Care has total fixed costs of $200,000, total variable costs of $150,000, and an output of 25,000 units. What is Ted's Lawn Care's average fixed cost?

Answer 1

Answer:

$ 8 per unit of output

Explanation:

Average fixed cost is defined as fixed cost incurred per unit of output.

Given,

Total Fixed cost =  $200,000

Total Variable Cost = $ 150,000

Output level = 25000 units

Average fixed cost can be computed as follows

Average fixed cost = $\frac{Total\ Fixed\ Cost}{No.\ of\ units}$ =  $\frac{200000}{25000}$ = $ 8 per unit of output

Fixed costs refer to those costs which do not change in quantum irrespective of the level of output. For example rent of the factory premises.