If the average fixed cost (AFC) of producing 5 bags of ri...
If the average fixed cost (AFC) of producing 5 bags of rice is $20.00, the average fixed cost of producing 10 bags will be
$2.00
$4.00
$10.00
$20.00
Correct answer is C
Average fixed cost decreases as the number of output increases. Hence, if a firm spent $20 to produce 5 bags of rice, when it increases the output level to 10 bags of rice the cost will not change because it is a fixed cost, but rather, the same amount of fixed costs will be spread over a larger number of units of output.
Hence, the $20 cost that was used to produce 5 bags of rice, will accommodate the new level of output.
If 5 bags were produced at $20
Then 10 bags will also be produced at $20 cost
TFC = AVC x Q
$20 x 5 bags x = $100
AVC = \(\frac{TFC}{Q}\)
AVC for 10 bags =
\(\frac{100}{10}\) = $10.00
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