Question

Suppose the total cost of producing 15,000 tennis balls is $30,000, and the fixed cost is $20,000. What is the variable cost? $10,000). (Enter a numeric response using an integer.) When output is 15,000, what is the average variable cost? $ 1.33. (Enter a numeric response using a real number rounded to two decimal places.) (Enter a numeric response using a real number rounded to two When output is 15,000, what is the average fixed cost? $ decimal places.) Assuming that the cost curves have the usual shape, the dollar difference between average total costs and average variable costs decreases as output increases.

Answer 1

Note that total cost = fixed cost + variable cost

Variable cost = total cost - fixed cost = 30000 - 20000 = 10000

Average variable cost = variable cost / output = 10000 / 15000 = 2.67

Average fixed cost = fixed cost / output = 20000 / 15000 = 1.33

The correct choice is decreases. the difference between the average total cost and average variable cost is average fixed cost. As output increases average fixed cost declines and hence the difference between the average total cost and average variable cost also decreases.