Question

We observe that total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units. Which of the following is true if marginal cost is constant?
a. Fixed Cost = $100

b. Fixed Cost = $200

c. Fixed Cost = $300

d. Fixed Cost = $400

Answer 1

Answer:

c. Fixed Cost = $300

Explanation:

Because marginal cost is constant we can find the variable cost per unit and then subtract the total variable cost from the total cost in order to find the fixed cost. The firms total cost increase $300 (from 1500 to 1800) when output increases by 10 units (from 40 to 50), so the variable cost per unit is 300/10=30.

Now to calculate the total variable cost we will multiply variable cost per unit by the number of units.

50*30= 1500

Now we will subtract 1500 from 1800 in order to find the fixed cost.

1800-1500=300

Fixed cost is $300.