Question

If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is:

Answer 1

Answer: The total cost at an output level of eight units is $750.

We have

Average Fixed Cost  (AFC)       $12.50

Average Variable Cost  (VC)   $81.25

Number of units                    8

We compute the total fixed cost (TFC) as follows:

$TFC = AFC * Number of units (output)$

$\mathbf{TFC = 12.50 * 8 = 100}$

We calculate Total Variable Cost (TVC) as:

$TVC = VC *number of units$

$TVC = 81.25 *8 = 650$

Since Total Costs (TC) is nothing but the sum of total fixed costs and total variable costs,

$TC = TFC + TVC$

$TC = 100 + 650 = 750$