Question

7) Suppose AVC = $113 when the firm produces 515 units of output. Then the firm's fixed cost amounts to a) $5,500, and its profit amounts to $20,375. b) $5,980, and its profit amounts to $25,750. c) $5,750, and its profit amounts to $20,375 d) $6,180, and its profit amounts to $25,750.

Answer 1

Answer:

d) $6,180, and its profit amounts to $25,750.

Explanation:

At output 515, average variable cost is $113

VC = AVC * Q

     = $113 x 515

     = $58,195

TC = ATC * Q

     = $125 x 515

     = $64,375

Now calculate for Fixed Cost

Total Cost (TC) = VARIABLE COST (VC) + FIXED COST (FC)

FC = TC - VC

     = $64,375 - $58,195

     = $6,180

Calculate for profit

Profit = TR - TC

         = $90,125 - $64,375

         = $25,750