Question

A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3.50 per unit. What is the firm's total fixed cost?

Answer 1

The firm is producing
100 units
Total cost = $400
AVC = $3.50
TFC =?

First you need to find the total variable cost (TVC)

$3.50 is the average per 1 unit, and you have to use mathematical logic in this question.
However, the firm is producing 100 units
This means you have to multiply 3.50 X 100
= $350
So your TVC = $350

However, the total cost is $400
Total costs = fixed costs + variable costs
Use algebra to move the fixed costs on its own and you get:
total costs - variable costs = fixed costs

therefore:
400 - 350 = 50

$50 = Total fixed costs.