Multiple Choice
The cost per unit decreases as volume increases for which of the following cost behaviors?
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10. The Costs of Production
Cost-Minimizing Combination of Labor and Capital
Multiple Choice
Which of the following best describes the variable cost per unit of output produced in the context of cost-minimizing combination of labor and capital?
A
The average total cost minus the average fixed cost
B
The marginal cost of producing one more unit of output
C
The total variable cost divided by the quantity of output
D
The sum of all fixed costs divided by the quantity of output
Verified step by step guidance1
Understand the definition of variable cost per unit: it is the cost that changes with the level of output, divided by the quantity produced.
Recall that total cost (TC) is composed of total fixed cost (TFC) and total variable cost (TVC), so \(TC = TFC + TVC\).
Average total cost (ATC) is defined as \(ATC = \frac{TC}{Q}\), and average fixed cost (AFC) is \(AFC = \frac{TFC}{Q}\), where \(Q\) is the quantity of output.
Recognize that variable cost per unit is the average variable cost (AVC), which can be found by subtracting average fixed cost from average total cost: \(AVC = ATC - AFC\).
Alternatively, variable cost per unit can be directly calculated as total variable cost divided by quantity: \(AVC = \frac{TVC}{Q}\). This matches the correct description in the problem.
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