Understanding Average Total Cost

What is the primary purpose of calculating the average total cost in economics?

• To determine the total revenue of a firm

• To understand the average cost per unit of output

• To assess the market demand for a product

• To calculate the profit margin of a company

In the context of the pizza restaurant example, what does the total quantity represent?

• The number of pizzas sold in a month

• The total revenue from pizza sales

• The cost of ingredients for pizzas

• The profit made from selling pizzas

Which of the following is considered a fixed cost for the pizza restaurant?

• Cost of cheese per pizza

• Monthly rent for the restaurant location

• Wages paid per hour to employees

• Cost of flour per pizza

How is the average total cost calculated in the final step?

• By multiplying total quantity by price per unit

• By subtracting total cost from total revenue

• By adding fixed and variable costs

• By dividing total cost by total quantity

Why is it important for a company to set prices above the average total cost?

• To attract more customers

• To increase market share

• To reduce competition

• To ensure they cover all production costs and make a profit