Question

Assume a firm is producing Q = 1,000 units of output. At Q = 1,000 the firm’s marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. If the firm were top produce 999 units of output, its total costs would be:

Answer 1

Answer:

$24,980

Explanation:

The formula to compute the average total cost is shown below:

Average total cost = Total cost ÷ quantity in units

$25 = Total cost ÷ 1,000 units

So, the total cost would be

= 1,000 units × $25

= $25,000

And, the marginal cost is $20

The marginal cost is the additional cost which arises from producing extra unit

Marginal cost = Total cost in 1,000 units - Total cost in 999 units

$20 = $25,000 - Total cost in 999 units

So, the total cost of 999 units would be

= $25,000 - $20

= $24,980