Question

Average variable cost equalsa. average total cost minus average fixed cost. b. total variable cost divided by the change in output. c. total variable cost divided by output. d. price of the variable input times the quantity of the variable input. e. a and c

Answer 1

Answer:

a. Average total cost minus average fixed cost.

Explanation:

• Total cost of production (TC)  can be expressed as the sum of two elements: total fixed cost (F) -those cost that do not vary with output level - and  total variable cost (V) - which are those cost that vary with the level of production. $TC=F+V$
• Average total cost (ATC) is simply the division of total cost by the output produced (Q): $ATC=\frac{TC}{Q} =\frac{F+V}{Q}=\frac{F}{Q}+\frac{V}{Q}$.
• Average variable cost (AVC) is the division of variable cost by the output produced: $AVC=\frac{V}{Q}$.
• Then, average variable cost  can be obtained by :

1. dividing the total variable cost by output (option c) or
2. subtracting to average total cost the fixed average cost ($\frac{F}{Q}$), (option a).