Doreenâs Dairy produces and sells Swiss cheese. Last year, it produced 7,000 pounds and sold each pound for $6. In producing the 7,000 pounds, the dairy incurred variable costs of $28,000 and a total cost of $40,000.

Refer to Scenario 13-19.

In producing the 7,000 pounds of cheese, the firm's average fixed cost was

a. $0.29.

b. $6.00.

c. $1.71.

d. $2,00.

The answer is option (c) $1.71

Explanation:

Solution

Given that:

Doreenas Dairy produced = 7000 pounds (Q)

Each pounds was sold for = $6

The incurred variable costs (vc) = $28,000

Total cost (Tc) = $40,000

Now we find the he firm's average fixed cost

Thus,

Fixed cost = Total cost (Tc) - Incurred variable cost (vc)

= $40,000 - $28,0000

=12,000

So, the average fixed costs (AFC) = FC/Q

=12,000/7000

=$1.714

Therefore the average fixed cost of the firm is $1.71