Answer the following questions (a) at zero output level if total cost is $100 what will be values of total variable cost and total fixed costs (b) At 4 units of output values of total fixed cost and total variable cost are $100 and $65 respectively. What are values for total cost, average total cost, average fixed cost and average variable cost?

(a) Total fixed cost is equal to $100, while total variable cost is equal to $100.

(b) Total cost = $165; Average total cost = $41.25; Average fixed cost = $25; and Average variable cost = $16.25

Explanation:

A fixed cost is a cost that does not change as the output changes. It is usually incurred before production starts and it continues to be incurred when there is a production stoppage. It includes cost on plant and machinery, building, etc.

A variable is a cost that changes as output changes. It is not incurred when there is a production stoppage. It includes cost of material and labour.

Based on this we can answer the question as follows:

(a) at zero output level if total cost is $100 what will be values of total variable cost and total fixed costs

At zero output level, fixed cost is equal to total cost. Therefore, total fixed cost is equal to $100.

At zero output level, no variable cost will be cost. Therefore, total variable cost is equal to $100.

(b) At 4 units of output values of total fixed cost and total variable cost are $100 and $65 respectively. What are values for total cost, average total cost, average fixed cost and average variable cost?

Total cost = Total fixed cost + Total variable cost = $100 + $65 = $165

Average total cost = Total cost/Units of output = $165/4 = $41.25

Average fixed cost = Total fixed cost/Units of output = $100/4 = $25

Average variable cost = Total variable cost/Units of output = $65/4 = $16.25 .

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