Question

Calvin is a college student who has identified the need his fellow students have for transportation to and from a nearby store. He owns a van that can carry four people in addition to himself; he pays $50 insurance costs per month. He has calculated that his cost of transporting his fellow students will be $2.50 per student per round-trip ride, assuming he has a full van. Given this information, which statement is correct, assuming Calvin has a full van?

a. Calvin's average variable costs will be $15.
b. Calvin's marginal cost is constant at $2.50.
c. Calvin's average variable cost is constant at $2.50

Answer 1

c. Calvin's average variable cost is constant at $2.50

Step-by-step explanation:

Variable cost is the cost incurred on variable inputs, that varies directly with the quantity of good produced or service rendered.

Average Variable Cost is the variable cost per unit of output.

For Calvin as a transport provider, average cost per student for a picking dropping ride, is $2.50 (if the van is fully occupied)

So, as per given assumption that Calvin has a full man, his average variable cost is constant at $2.50