Converse has been fairly successful selling denim colored UK sportswear. Lydia,

Question

Converse has been fairly successful selling denim colored UK sportswear. Lydia, wanting to get in on the profit, has also entered this market. After producing her profit maximizing level of output she finds that her average total cost per unit is $40, her average variable cost per unit is $30, and her selling price (forced upon her by the market), is $35. What is the value of average fixed cost when Lydia produces her profit-maximizing output level? Also, how much of the average fixed cost is she covering at the current market price? $10; $5 $10; $10 $70; $5 $40; $10

Explanation / Answer

answer is $10;$5

average fixed cost= average cost- average variable cost

=40$-30$

=10$

a firm will cover its variable cost first and then fixed cost out of revenue

so revenue=35

AVC=30

AFC that will be covered=35-30 $

=5$

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