Asked Nov 27, 2019
Suppose we have another firm known as Sepanyan Corporation which makes a product known as
Yeghias. Suppose the firm’s FC=$8,000 and its TC=$10,000 and its AVC=$5. What is the ATC? 

Expert Answer

Step 1

It is given that the Total cost of the firm is equal to $10,000 and the fixed cost is equal to $8,000. The additional information about the cost function is that the average variable cost of the firm is equal to $5. The average variable cost is obtained by dividing the total variable cost with the quantity. Since the total cost and fixed cost is known, the variable cost can be calculated by subtracting the fixed cost from the total cost as follows:


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Variable cost Total cost -Fixed cost =10,000-8,000 2,000

Step 2

The quantity produced by the firm can be calculated by substituting the value of variable cost and average variable cost in the AVC equation as follows:


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Variable cost Average Variable cost Output 2,000 5 2,000 Q 5 =400

Step 3

The output produced by the firm is identified to be 400. The total cost of production is given to be $10,000. Thus, the averag...


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Total Cost Average Total Cost = Quantity 10,000 400 25


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