A firm pays $500,000 per year on costs that it cannot alter in the short run. This year, it expects to produce 100 units, and it will pay $400,000 on the inputs to produce those 100 units. What is this firm's average variable cost?

Question

Quizplus · Accepted Answer

The average variable cost (AVC) is calculated by dividing the total variable costs by the quantity of output produced. In this case, the total variable costs are $400,000 for 100 units, so AVC = $400,000 / 100 = $4,000.

A Firm Pays $500,000 Per Year on Costs That It