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

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
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Solution 1

To answer this question, we first need to understand what fixed costs, variable costs, and average costs are.

  1. 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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