Question

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

• A. 2.5
• B. 6
• C. 5
• D. 11

Hint:

AVC = (TC - FC) / Q; TC = FC + VC.

Answer 1

The Correct Option is C

To find the Average Variable Cost (AVC), we use the following relationships:
- Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC)
- AVC = VC / Quantity (Q)
Given:
- TC = 55
- FC = 5
- Q = 10 units
Calculate VC: \[ VC = TC - FC = 55 - 5 = 50 \] Calculate AVC: \[ AVC = \frac{VC}{Q} = \frac{50}{10} = 5 \] Thus, the AVC at 10 units is 5, making option (3) correct. - Option (1) 2.5 is too low (implies VC = 25). - Option (2) 6 implies VC = 60, contradicting TC. - Option (4) 11 implies VC = 110, infeasible given TC = 55.

Answer 2

Back-substitution check:
Rather than computing AVC directly, test each option against the known Total Cost and Fixed Cost figures. Variable Cost must equal \( TC - FC = 55 - 5 = 50 \), so at Q = 10, AVC multiplied by Q must equal 50. Checking the options: \( 2.5 \times 10 = 25 \), \( 6 \times 10 = 60 \), \( 5 \times 10 = 50 \), and \( 11 \times 10 = 110 \). Only the option giving AVC = 5 reproduces the correct variable cost of 50, confirming option 3.