How much of the average total cost is made up of variable costs? A firm producing 7 units of output has an average total cost of Rs. 150 and has to pay Rs.350 to its fixed factors of production whether it produces or not.
Whenever a company is selling a product, there are different costs associated with that one product. The owner must determine how much that product costs them to make or procure. However, there are other costs associated with that product.
These include the store housing that product and the employees who require pay to try to sell that product. There are many other factors too. Therefore, in the math problem, a firm is producing seven units of output and has an average total cost of 150.
They have to pay 350 to its fixed factors of production whether it produces, sells or not. The average total cost which is made up of the variable costs would come to a total cost of 100.