Questions: The fixed cost of the firm is 500. The firm's total variable cost is indicated in the table. Output Total Variable Cost 1 400 2 720 3 1,000 4 1,400 5 2,000 6 3,600 Refer to the above table and information. The average variable cost of the firm when 5 units of output are produced is: 300 400 100 200

The fixed cost of the firm is 500. The firm's total variable cost is indicated in the table. Output Total Variable Cost 1 400 2 720 3 1,000 4 1,400 5 2,000 6 3,600 Refer to the above table and information. The average variable cost of the firm when 5 units of output are produced is: 300 400 100 200

Solution

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The answer is the second one (or B): \$400.

To determine the average variable cost (AVC) when 5 units of output are produced, we use the formula:

\[ \text{AVC} = \frac{\text{Total Variable Cost}}{\text{Quantity of Output}} \]

From the table, the total variable cost (TVC) for 5 units of output is \$2,000.

So, we calculate:

\[ \text{AVC} = \frac{\$2,000}{5} = \$400 \]

Therefore, the average variable cost when 5 units of output are produced is \$400.

Explanation for each option:

  • \$300: Incorrect. This value does not match the calculated AVC.
  • \$400: Correct. This matches the calculated AVC.
  • \$100: Incorrect. This value does not match the calculated AVC.
  • \$200: Incorrect. This value does not match the calculated AVC.

In summary, the average variable cost of the firm when 5 units of output are produced is \$400.

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