Question

Average total cost is very high when a small amount of output is produced because Select one: a. average variable cost is high. b. average fixed cost is high. c. marginal cost is high. d. marginal product is high.

Answer 1

Answer:

b. average fixed cost is high

Explanation:

Average total cost refers to the total cost per unit of output produced. It is expressed as:

ATC = $\frac{Fixed\ Cost\ +\ Variable\ Cost}{Units\ Of\ production}$

Marginal cost refers to the addition to total cost when an additional unit of output is produced.

Average fixed cost refers to total fixed cost per unit of output produced.

Since fixed costs remain unchanged irrespective of output produced, initially average fixed cost is high which raises the average total cost. As average total cost is the sum total of average fixed cost and average variable cost.