Final answer:
The correct calculation for cost per unit, with all output complete and no losses, is to divide the total cost by the total units produced. This average cost helps a firm assess their profitability compared to the market price. Other cost measurements such as marginal cost are relevant for additional business insights.Thus, the correct answer is option A.
Step-by-step explanation:
The question relates to calculating the cost per unit when all output is fully complete and there are no losses within the process. The correct way to calculate the average cost per unit is to take the total cost and divide it by the total units produced. Therefore, the correct answer to the question is A. Total cost divided by total units produced. When there are no losses, including neither normal nor abnormal, the total cost is to be simply divided by the total units produced to find the average cost per unit.
We define average cost (AC) as the total cost (TC) divided by the quantity of output produced (Q), which is AC = TC/Q. For instance, if producing two widgets costs a total of $44, then the average cost per widget is $22. It's essential for a firm to understand their average total cost because, if this cost is lower than the market price, the firm will be earning profits.
It's worth mentioning that average costs typically have a U-shaped curve on a graph, indicating the economies and diseconomies of scale as output increases. Unlike average cost, marginal cost (MC) measures the cost of producing one more unit of output and is calculated as the change in total cost divided by the change in output (MC = ΔTC/ΔQ).