Question

If at optimum output of 1,000 units, the firm is incurring average variable cost per unit of $3, average fixed cost per unit of $1.50, and selling its output at $7 per unit, total profit is Group of answer choices $1,500. $2,500. $250. $7,000.

Answer 1

Answer:

$2500

Explanation:

Given: Total output(quantity)= 1000 units.

           average variable cost per unit= $3

           Average fixed cost per unit= $1.5

           Selling price per unit is $7

We know, Profit= $Total\ revenue - Total\ cost$

First, lets find out total cost

Total cost= $Total\ fixed\ cost+ Total\ variable\ cost$

Remember, cost= $average\ cost\times quantity$

$Fixed\ cost= \textrm{average fixed cost per unit}\times quantity$

$Fixed\ cost= 1.5\times 1000= \ 1500$

$Variable\ cost= \textrm{average variable cost per unit}\times quantity$

$Variable\ cost= \ 3\times 1000= \ 3000$

∴ Total cost= $1500+ 3000$= $\ 4500$

Now, finding total revenue.

$Total\ revenue= selling\ price\times quantity$

$Total\ revenue= \ 7\times 1000= \ 7000.$

Profit= $Total\ revenue - Total\ cost$

∴ Total profit= $\ 7000-\ 4500= \ 2500$

Total profit= $2500