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Average variable cost from total cost

Discussion in 'CT7' started by Rupel, Mar 11, 2017.

  1. Rupel

    Rupel Member

    Hey, it would be very helpful if someone could please explain how to calculate average variable cost from total cost in the problem attached. Kindly reply. Thanks IMG_6282.JPG
     
    Rupel, Mar 11, 2017
    #1
  2. bystander

    bystander Member

    The trick here is to understand your data. You are given total costs. So what does this represent? Total cost is fixed + variable. So you should be able to see what the fixed element is and therefore what is variable. Total variable at any level is sum of marginal variable up to that level. That should help you.
     
    bystander, Mar 11, 2017
    #2
  3. Kaushal Bhalotia

    Kaushal Bhalotia Member

    Hi Rupel,

    The way to find the AVC is : TC at 0 output is 5 which means fixed cost (FC) is 5. Hence, if we subtract 5 from the TCs for all the subsequent output levels we will get the VC at each output. Now, AVC = VC /Q. Which is easy to find.

    Example: at output 2 unit TC= 5 + 73 = FC + VC. Hence, AVC = 73 / 2 = 36.5
     
    Kaushal Bhalotia, May 24, 2017
    #3

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