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WAEC Economics 2020 Paper

Question : 19

Total: 48

If the average fixed cost (AFC) of producing 5 bags of rice is \$20.00, the average fixed cost of producing 10 bags will be

\$2.00
\$4.00
\$10.00
\$20.00

Validate

Solution:

Average fixed cost decreases as the number of output increases. Hence, if a firm spent \ $20 to produce 5 bags of rice, when it increases the output level to 10 bags of rice the cost will not change because it is a fixed cost, but rather, the same amount of fixed costs will be spread over a larger number of units of output. Hence, the \$20 cost that was used to produce 5 bags of rice, will accommodate the new level of output. If 5 bags were produced at \$20 Then 10 bags will also be produced at \$20 cost TFC = AVC x Q \$20 x 5 bags x = \$100 AVC =$ \; \frac{TFC}{Q} $ AVC for 10 bags = $ \; \frac{100}{10}$ = \$10.00

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