From Example 7.2, most pizza restaurants have large fixed costs and relatively low variable costs. What does this tell us about the average variable cost (AVC) of producing pizza?
A) AVC is relatively low.
B) AVC is relatively high.
C) AVC is high for low quantities but declines quickly.
D) AVC is increasing for all quantity levels.

Question

Quizplus · Accepted Answer

The fact that most pizza restaurants have large fixed costs and relatively low variable costs suggests that the AVC of producing pizza is relatively low. This is because the fixed costs make up a larger portion of the total cost of production, so as the quantity of pizzas produced increases, the average variable cost decreases.