A table water bottling factory operating in the short run produces 500 bags of sachet wate… — JAMB UTME

A table water bottling factory operating in the short run produces $500$ bags of sachet water daily. At this output level, the factory incurs a Total Fixed Cost ( $\text{TFC}$ ) of $\text{₦}12,000$ and an Average Variable Cost ( $\text{AVC}$ ) of $\text{₦}40$ per bag. What is the Average Total Cost ( $\text{ATC}$ ) per bag of sachet water in Naira ( $\text{₦}$ ) at this output level?

Answer: 64 ₦

Answer

The Average Total Cost (ATC) per bag of sachet water is ₦64.

Average Total Cost (ATC) represents the total cost per unit of output produced and can be calculated using the identity ATC = AFC + AVC. First, Average Fixed Cost (AFC) is computed by dividing Total Fixed Cost (TFC = ₦12,000) by total output (Q = 500), which equals ₦24 per bag. Adding the given Average Variable Cost (AVC = ₦40) to the AFC yields an ATC of ₦24 + ₦40 = ₦64 per bag.

Step-by-Step Solution

Calculate the Average Fixed Cost (AFC)

AFC = ₦12,000 / 500 = ₦24 per bag

Average Fixed Cost is obtained by dividing Total Fixed Cost (TFC) by the total output quantity (Q).

Calculate the Average Total Cost (ATC)

ATC = AFC + AVC = ₦24 + ₦40 = ₦64 per bag

Average Total Cost is the sum of Average Fixed Cost (AFC) and Average Variable Cost (AVC).

Key Concept

Short-Run Average Cost Calculations (ATC = AFC + AVC)

Estimated Time:1m 15s

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