7. If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total fixed costs are:
A. $5
B. $100
C. $1,020
D. $1,040

Question

7.    If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total fixed costs are:
A.    $5
B.    $100
C.    $1,020
D.    $1,040

BlackTom AI · Accepted Answer

We start by restating the information given in the question to be clear about what we’re solving for.
Question: If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total fixed costs are:

Options:
A. $5
B. $100
C. $1,020
D. $1,040

Next, we analyze what average fixed costs (AFC) means. AFC is defined as total fixed costs (TFC) divided by quantity of output (Q): AFC = TFC / Q.
From the problem, AFC = $10 and Q = 10 units. Substituting these values gives: 10 = TFC / 10.
Solving for TFC, we multiply both sides by 10: TFC = 10 × 10 = $100.

Now, we evaluate each answer choice:
- Option A ($5): This would imply a TFC of $5, but that would yield AFC = 5/10 = $0.50, not $10. This is inconsistent with the given AFC, so Option A is incorrect.
- Option B ($100): This matches the calculation TFC = $100, which gives AFC = 100/10 = $10, exactly as given. This is consistent and correct.
- Option C ($1,020): If TFC were $1,020, AFC would be 1,020/10 = $102, far from the stated $10. This contradiction rules out Option C.
- Option D ($1,040): If TFC were $1,040, AFC would be 1,040/10 = $104, which again does not match the given AFC. Therefore, Option D is incorrect.

Summary of reasoning: The key relationship is AFC = TFC / Q. Using AFC = $10 and Q = 10 units, we find TFC = $100. Any other value for TFC would yield an AFC that does not equal $10, making the other options invalid.

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