Average fixed cost plus average variable cost equals average total cost, which represents the per-unit production cost combining both fixed and variable costs. Calculation of average variable cost involves dividing total variable costs by the quantity of output and is key to analyzing profitability relative to market price. The correct answer is C.
Average fixed cost plus average variable cost equals average total cost (ATC). The average total cost is the sum of all the costs incurred in the production, divided by the number of units produced. This includes both fixed and variable costs. Fixed costs do not change with the level of output, while variable costs do. Average total cost is important for a firm to understand because it indicates the per-unit cost of production, which helps in pricing decisions and calculating break-even points.
To calculate the average variable cost (AVC), you divide total variable costs by the total output. AVC typically follows a U-shaped curve. If a firm's AVC is lower than the market price, the firm can cover its variable costs and it would be potentially profitable if we ignore fixed costs.
The correct answer is C.
The complete question is:
Average fixed cost plus average variable cost equals
A. marginal cost.
B. total cost.
C. average total cost.
D. total variable cost.
E. marginal fixed cost.