CFA Practice Question

CFA Practice Question

Mr. Hudson notes that if he produces 10 pairs of shoes per day his average fixed cost (AFC) is $10 and his marginal cost $8; if he produces 20 pairs of shoes per day his MC is $15. What is his AFC when output is 20 pairs of shoes per day?
A. $7
B. $5
C. $15
Explanation: AFC = TFC / Q. Thus, if AFC = $10 = TFC / 10, TFC must equal $100. TFC does not change with level of output. Therefore, when output is 20 AFC = $100 / 20 or AFC = $5.

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