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Calculating Average Total Cost
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If a firm has fixed costs of $200 and variable costs of $300 for producing 3 units, what is the average total cost per unit?

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Choose the Best Answer

A

$166.67

B

$100

C

$200

D

$166.00

Understanding the Answer

Let's break down why this is correct

Answer

To find the average total cost per unit, we first need to calculate the total costs of producing the units. The total costs include both fixed costs and variable costs. In this case, the fixed costs are $200, and the variable costs for producing 3 units are $300, which gives us a total cost of $500 when we add them together. Next, we divide this total cost by the number of units produced, which is 3. So, $500 divided by 3 equals approximately $166.

Detailed Explanation

To find the average total cost, add fixed and variable costs. Other options are incorrect because This answer might come from dividing the fixed costs only; This answer could be from only considering fixed costs.

Key Concepts

Average Total Cost (ATC)
Fixed and Variable Costs
Production Decisions
Topic

Calculating Average Total Cost

Difficulty

medium level question

Cognitive Level

understand

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