A firm has fixed costs of $400, average total costs of $3 and average variable costs of $2.50. The output of the firm is _____________.
Question
A firm has fixed costs of 3 and average variable costs of $2.50. The output of the firm is _____________.
Solution
To find the output of the firm, we first need to understand the relationship between average total costs (ATC), average variable costs (AVC), and average fixed costs (AFC).
The formula is: ATC = AVC + AFC
We know that ATC is 2.50. We can rearrange the formula to find AFC:
AFC = ATC - AVC AFC = 2.50 = $0.50
Now, we know that the firm's fixed costs are $400. To find the output, we divide the total fixed costs by the average fixed costs:
Output = Total Fixed Costs / AFC Output = 0.50 = 800 units
So, the output of the firm is 800 units.
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