Final answer:
To determine the average unit cost, divide the cost of goods manufactured by the number of units produced. The formula used is AC = TC/Q. Understanding average cost helps businesses set pricing strategies by ensuring costs are covered.
Step-by-step explanation:
If you are looking to determine the average unit cost after computing the cost of goods manufactured for a single product, the correct method is to divide the total cost of goods manufactured by the number of units produced. This approach gives you the average cost of producing one unit. In the formula AC = TC/Q, 'AC' stands for average cost, 'TC' is total cost, and 'Q' is the quantity of output produced. For example, if producing two widgets costs a total of $44, the average cost per widget would be $22, calculated as $44/2. This concept is crucial for businesses to understand their pricing strategies and to ensure they cover their costs while remaining competitive.
Contrasting with average cost, marginal cost involves measuring the cost to produce one additional unit of output, using the formula MC = ∆TC/∆Q. If producing the first widget costs $32.50 and the cost for two widgets is $44, the marginal cost of the second widget is calculated as $44 - $32.50 = $11.50.