Correct Answer: Option C

Explanation

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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