Question

A firm producing 7 units of output has an average total cost of Rs. 150 and has to pay Rs.350 to its fixed factors of production whether it produces or not. How much of the average total cost is made up of variable costs?

Answer 1

Rs 100 of the average total cost is made up of variable costs.

Step-by-step explanation:

Given:

Number of output the firm produces= 7 units

Average cost of the output= Rs. 150

fixed factors of production = Rs.350

To Find:

How much of the average total cost is made up of variable costs=?

Solution:

we know that,

Average total cost= total cost/ number of output units produced

substituting the values, we get

$150=\frac{\text{Total cost}}{7}$

Total cost= 1050

we know that Total fixed cost = 350

Total cost = Total fixed cost + Total variable cost

plug in the known values.

1050= 350 + Total variable cost

Total variable cost = 1050-350

Total variable cost =700

For 7th unit $\frac{700}{7}$ = 100