Final answer:
The steeper the slope of the variable cost per unit, the higher the variable cost per unit is. We calculate average variable cost by dividing the total variable cost by output, and a firm profits when AVC is less than market price.
Step-by-step explanation:
Because the variable cost per unit equals the slope of the straight line, the steeper the slope the higher the variable cost per unit.
In the context of a production possibilities curve, a steeper slope indicates a higher opportunity cost for producing an additional unit of a good.
For instance, if we consider a company producing snowboards and skis, a plant with a steeper slope on its production possibilities curve will have a higher opportunity cost for producing an extra snowboard, meaning it has to give up more skis compared to a plant with a flatter curve.
We calculate average variable cost (AVC) by dividing the variable cost by the total output at each level of output. As output increases, fixed costs are spread over more units, which means the AVC approaches average total cost. If a firm's AVC of production is lower than the market price, it can potentially earn profits, disregarding fixed costs.