Suppose that a factory produces exactly two automobiles. The fixed cost is $20,000. The (total) variable cost is $10,000. The average cost per automobile is
Question
Solution 1
To answer this question, we first need to understand what fixed costs, variable costs, and average costs are.
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Fixed costs are costs that do not change with the level of output. In this case, the fixed cost is $20,000, which the factory has to pay regardless of how many automobiles it produces.
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