per unit produced. a. What is the firm’s total cost function Average cost The variable cost of producing an additional unit, marginal cost, is constant at $500, so 500 VC q , and 500 500 VC q AVC q q . Fixed cost is $5000 and therefore average fixed cost is 5000 AFC q . The total cost function is fixed cost plus variable cost or TC 5000500q. Average total cost is the sum of average variable cost and average fixed cost 5000 500 ATC q b. If the firm wanted to minimize the average total cost, would it choose to be very large orb bvery small Explain. The firm would choose to be very large because average total cost decreases as q is increased. As qbecomes extremely large, ATC will equal approximately 500 because the average fixed cost becomes close to zero. 4. Suppose a firm must pay an annual tax, which is a fixed sum, independent of whether it
