Question

The difference between Average Total Cost and Average Variable Cost:
(a) is constant
(b) is total fixed cost
(c) gets narrower as output decreases
(d) is the average fixed costs

Answer 1

Answer:

(a) is constant is the answer

Answer 2

The difference between average total cost and the average variable cost gets narrower as output decreases.

What is the average total cost?

• It is calculated as the total cost divided by the quantity of output
• It is decreased when the number of fixed costs increases
• The numerator of total cost increases is small as compared to the increase in the denominator

What is the average variable cost?

• It is calculated as variable cost divided by the quantity of output
• When the output increases the fixed cost is less so the average variable cost gets closer to the average cost