A company is producing 100 units. At this quanity, it's average total cost is $25, and it's total fixed cost is $2,000. How much is it's total variable cost?
To calculate the total variable cost, we first need to understand the concept of average variable cost (AVC). The average variable cost is the variable cost per unit of output.
To find the average variable cost, we divide the total variable cost (TVC) by the quantity produced (Q). The formula for AVC is:
AVC = TVC / Q
Given that the average total cost (ATC) is $25, and that ATC is equal to the sum of average variable cost (AVC) and average fixed cost (AFC), we can rearrange the formula to find AVC:
ATC = AVC + AFC
Since AFC is given as $25 - AVC, we can substitute this into the formula:
$25 = AVC + $25 - AVC
Now, let's solve for AVC:
$25 - $25 = AVC - AVC
$0 = 0AVC
AVC = $0
This means that the average variable cost (AVC) is $0.
To find the total variable cost (TVC), we multiply the average variable cost (AVC) by the quantity produced (Q):
TVC = AVC * Q
TVC = $0 * 100
TVC = $0
Therefore, the total variable cost is $0.