Question

The following cost information shows that as production increases, Quantity produced/day Total Cost 0 $2,000 1 $2,500 2 $2,800 3 $3,300 4 $4,100 5 $5,300 6 $7,000 Group of answer choices average total cost decreases and then increases. average fixed cost increases. Total cost is increasing slower and slower. marginal cost falls.

Answer 1

Answer:

The following cost information shows that as production increases, the

average total cost decreases and then increases.

Explanation:

a) Data and Calculations:

    Quantity      Total Cost   Marginal  Average

produced/day                        Cost      Total Cost

0                         $2,000     $2,000      $0

1                          $2,500        $500      $2,500

2                         $2,800        $300       $1,400

3                         $3,300        $500        $1,100

4                         $4,100         $800       $1,025

5                        $5,300      $1,200       $1,060

6                        $7,000      $1,700        $1,167

b) The average total cost is the total cost divided by the quantity produced per day.  When no unit was produced, the company still incurred some cost, known as fixed cost for production infrastructure, etc.  As the quantity produced increases, the average total cost tends to decrease until the quantity increased to 5 units.  Perhaps, the factory capacity was exceeded at this point.  No wonder the entity recorded an increase in the average total cost.