Question

If the TC at 10 units of output is 55 and the Fixed Cost is 5, then the AVC at 10 units of output will be:

• A. 25
• B. 6
• C. 5
• D. 11

Hint:

To check your work, recalculate Total Cost:
\[ \text{TC} = \text{TFC} + (\text{AVC} \times Q) = 5 + (5 \times 10) = 5 + 50 = 55 \] This confirms your calculations are correct.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
In short-run cost analysis, a firm's total costs are divided into fixed costs and variable costs.
Fixed costs do not change with output, whereas variable costs change directly as output changes.
Key Formula or Approach:
The short-run cost relationships are defined as:
\[ \text{Total Cost (TC)} = \text{Total Fixed Cost (TFC)} + \text{Total Variable Cost (TVC)} \] \[ \text{Average Variable Cost (AVC)} = \frac{\text{Total Variable Cost (TVC)}}{\text{Quantity of Output (Q)}} \]

Step 2: Detailed Explanation:
Let us calculate the Average Variable Cost using the given values:
1. The quantity of output is:
\[ Q = 10 \text{ units} \] 2. The Total Cost is:
\[ \text{TC} = 55 \] 3. The Fixed Cost (TFC) is:
\[ \text{TFC} = 5 \] 4. First, calculate the Total Variable Cost (TVC) by subtracting TFC from TC:
\[ \text{TVC} = \text{TC} - \text{TFC} = 55 - 5 = 50 \] 5. Next, calculate the Average Variable Cost (AVC) by dividing TVC by the quantity of output:
\[ \text{AVC} = \frac{\text{TVC}}{Q} = \frac{50}{10} = 5 \] Therefore, the AVC at 10 units of output is 5.

Step 3: Final Answer:
The Average Variable Cost is 5, matching Option (C).