Which is the equation for average variable cost (AVC)?

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Prepare for the OnRamps Economics College Exam with detailed multiple-choice questions and explanations. Strengthen your understanding and boost your performance!

Multiple Choice

Which is the equation for average variable cost (AVC)?

Explanation:
Average variable cost measures the variable cost per unit of output. Since total cost is the sum of fixed and variable costs, the part that varies with output is the total variable cost (TVC). Dividing TVC by the quantity produced gives the cost per unit that varies with output, which is AVC. That’s why AVC = TVC/OUTPUT. The other expressions mix in fixed costs or misuse multiplication, which wouldn’t represent per-unit variable cost. (AVC is defined for positive output.)

Average variable cost measures the variable cost per unit of output. Since total cost is the sum of fixed and variable costs, the part that varies with output is the total variable cost (TVC). Dividing TVC by the quantity produced gives the cost per unit that varies with output, which is AVC. That’s why AVC = TVC/OUTPUT. The other expressions mix in fixed costs or misuse multiplication, which wouldn’t represent per-unit variable cost. (AVC is defined for positive output.)

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