Question

The average total cost of producing cell phones in a factory is $20 at the current output level of 100 units per week. If the fixed cost is $1,200 per week:
A. variable cost is $2,000.
B. average variable cost is $8.
C. total cost is $3,200.
D. average fixed cost is $20.

Answer 1

Answer:

Option (B) is correct.

Explanation:

Given that,

Average total cost of producing cell phones = $20

Current output level = 100 units per week

Fixed cost = $1,200 per week

Average total cost = (Variable cost + Fixed cost) ÷ Number of units

$20 = (Variable cost + $1,200) ÷ 100

$2,000 = (Variable cost + $1,200)

$2,000 - $1,200 = Variable cost

$800 = Variable cost

Total cost = Variable cost + Fixed cost

                 = $800 + $1,200

                 = $2,000

Average variable cost:

= Variable cost ÷ Number of units

= $800 ÷ 100

= $8

Average Fixed cost:

= Fixed cost ÷ Number of units

= $1,200 ÷ 100

= $12

Therefore, the correct answer is: Average variable cost is $8.