Average total cost is important to a business because
A)It tells the firm what the profit per unit produced is.
B)It always declines as more output is produced.
C)It tells the firm what its fixed costs are.
D)It is an indicator of the production function.

Question

Quizplus · Accepted Answer

Average total cost is calculated by dividing total costs by the quantity produced. This number is important to businesses because it tells them what the cost per unit is and therefore what their profit per unit is. Knowing this allows businesses to make strategic decisions regarding pricing and production levels. B is incorrect because there is a range of production levels where average total cost may increase before declining again, known as the "U-shaped" average total cost curve. C is incorrect because fixed costs are already known and do not change with production levels. D is incorrect because the production function is a separate concept related to the relationship between inputs and outputs, and is not directly related to average total cost.

Average Total Cost Is Important to a Business Because