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Calculating Average Total Cost
hard

A firm operates in a perfectly competitive market with fixed costs of $2000, variable costs of $10 per unit, and produces 100 units. What is the average total cost (ATC) of producing the output, and at what output level will it break even if the market price is $30 per unit?

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Choose the Best Answer

A

$30; 100 units

B

$20; 200 units

C

$30; 200 units

D

$10; 100 units

Understanding the Answer

Let's break down why this is correct

Answer

To find the average total cost (ATC), we first need to calculate the total costs of production. Total costs include both fixed costs and variable costs. In this case, the fixed costs are $2000, and the variable costs for producing 100 units at $10 per unit are $1000 (which is $10 multiplied by 100). Therefore, the total costs are $2000 plus $1000, which equals $3000. To find the ATC, we divide the total costs of $3000 by the number of units produced, which is 100, resulting in an ATC of $30 per unit.

Detailed Explanation

To find the average total cost, add fixed costs and variable costs, then divide by the number of units. Other options are incorrect because This answer suggests a lower average cost, which might come from misunderstanding how to calculate total costs; This option has the correct average cost but the wrong output level.

Key Concepts

Fixed Costs
Break-Even Point
Market Structure
Topic

Calculating Average Total Cost

Difficulty

hard level question

Cognitive Level

understand

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