Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
ATC decreases as production increases due to spreading fixed costs over more units.
B
ATC can increase if variable costs rise disproportionately with output.
C
ATC is only influenced by variable costs and not fixed costs.
D
A firm can achieve economies of scale by reducing ATC through increased production.
E
ATC is calculated by dividing total variable costs by the quantity of output.
Understanding the Answer
Let's break down why this is correct
Answer
Average Total Cost (ATC) is the total cost of producing goods divided by the number of goods produced. To find ATC, you add up all the fixed costs, like rent and salaries, and all the variable costs, like materials and labor, then divide this sum by the number of units produced. For example, if a company spends $200 on fixed costs and $300 on variable costs to produce 100 items, the total cost is $500, and the ATC would be $500 divided by 100, which equals $5 per item. Understanding ATC helps firms set prices and make decisions about production levels. It is important because it shows how costs change with different levels of output, helping businesses operate efficiently.
Detailed Explanation
Other options are incorrect because Some might think ATC always goes down with more production; It's a common mistake to think ATC only goes up with more production.
Key Concepts
Average Total Cost (ATC)
Cost Structure of Production
Economies of Scale
Topic
Calculating Average Total Cost
Difficulty
hard level question
Cognitive Level
understand
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