Question

The average variable cost is the result of ____________.

• A. Total variable cost and fixed cost.
• B. Output and marginal cost.
• C. Marginal cost and total variable cost.
• D. Total variable cost and output.

Hint:

To remember any "average" cost formula:
"Average" always means dividing the corresponding "Total" cost by the "Output" (Q):
- \(\text{Average Variable Cost (AVC)} = \frac{\text{Total Variable Cost (TVC)}}{\text{Output}}\).
- \(\text{Average Fixed Cost (AFC)} = \frac{\text{Total Fixed Cost (TFC)}}{\text{Output}}\).
- \(\text{Average Total Cost (ATC)} = \frac{\text{Total Cost (TC)}}{\text{Output}}\).

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
In microeconomics, production costs are divided into fixed costs (which do not change with output) and variable costs (which vary directly with the level of output).
The average variable cost (AVC) is the variable cost per unit of output produced.
Key Formula or Approach:
The Average Variable Cost (AVC) is calculated using the formula:
\[ \text{Average Variable Cost (AVC)} = \frac{\text{Total Variable Cost (TVC)}}{\text{Output } (Q)} \]
Where:
- \(TVC\) is the total variable cost.
- \(Q\) is the quantity of output produced.

Step 2: Detailed Explanation:
Let us analyze the options:
- Option (A): Total variable cost and fixed cost. Their sum gives the *Total Cost (TC)*, not average variable cost.
- Option (B): Output and marginal cost. Marginal cost is the cost of producing one additional unit, which is different from the average.
- Option (C): Marginal cost and total variable cost. These are two different cost concepts and do not calculate average variable cost.
- Option (D): Total variable cost and output. As shown in our formula, dividing the Total Variable Cost (TVC) by the quantity of output produced (\(Q\)) yields the Average Variable Cost (AVC).
Thus, Average Variable Cost is the result of dividing total variable cost by output.
This matches Option (D).

Step 3: Final Answer:
The correct option is (D).