Final answer:
The false statement about cost behavior is that 'A variable cost remains constant, in total, as the activity level changes.' Instead, variable costs change with the level of activity, while fixed costs remain constant in total.
Step-by-step explanation:
When considering cost behavior within the relevant range, the statement that is false is: A. A variable cost remains constant, in total, as the activity level changes. This is because a variable cost does not stay the same in total but rather changes in direct proportion to the level of activity. On a per unit basis, a variable cost is indeed constant as illustrated in statement B. Fixed costs, as stated in C, remain constant in total regardless of changes in the level of activity. Lastly, as stated in D, the average fixed cost per unit varies inversely with changes in the level of activity since the same total amount of fixed costs is spread over more units as production increases.
The concept of average variable cost is key to understanding how costs behave. We calculate average variable cost by taking the total variable cost and dividing it by the total output at each level of output. Because average variable costs are typically U-shaped, firms can compare it to the market price to decide if they would be earning profits, assuming fixed costs are not considered.
To understand how costs are categorized, it is important to recognize that total, fixed, and variable costs are measured in total dollars, while marginal cost, average cost, and average variable cost are measured per unit of output. Therefore, they are graphed separately due to their different units of measurement.