1) The Total Cost is divided into two parts, one part depends on the level of output produced and is known as the Total Variable Cost, another part is independent of the level of output produced and is always fixed, this part is known as the Total Fixed Cost. Here, Rent is a part of Total Fixed Cost because irrespective of how much a producer produces, he has to pay a fixed amount of rent to his landlord at regular intervals of a certain period (say for example monthly, yearly etc). Now, Labor and Materials are a part of Total Variable Cost because the producer can choose to employ a fixed amount of labor and buy raw materials according to his needs and accordingly he can increase or decrease his purchases of materials and his demand for labor.
So, now according to the question assuming the firm produces 3 million units per month,
the Total Variable Cost, per month is = 3000000 * (Cost of Labor per unit + Cost of Materials per unit)
= 3000000 * (160 + 40)
= 3000000 * 200
= $ 600000000
= $ 600 million.
The Total Fixed Cost, per month is = $ 400000
= $ 0.4 million
The Total Cost is = Total Variable Cost + Total Fixed Cost
= 600 + 0.4
= $ 600.4 million
1) 2) 3) A business incurs the following costs: Labor: $160/unit Materials: $40/unit Rent: $400,000/month Assume...
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