You operate a factory that produces beach towels.Your current level of output equals 2,000 towels per week.Your weekly variable cost equals $8,000.If your total cost each week equals $9,000,it follows that:
A) the average variable cost of production equals $2 per towel.
B) the average variable cost of production equals $4 per towel.
C) the average total cost of production equals $8 per towel.
D) none of the above

Question

Quizplus · Accepted Answer

To find the average variable cost (AVC) per towel, we need to divide the total variable cost (TVC) by the level of output.

TVC = $8,000 because it is given that the weekly variable cost equals $8,000.

Total cost (TC) = $9,000.

To find the fixed cost (FC), we need to subtract TVC from TC.

FC = TC - TVC = $9,000 - $8,000 = $1,000

Now, we can use the formula for the average total cost (ATC) per towel:

ATC = TC/Q = (FC + TVC)/Q

AVC = TVC/Q

Given that the level of output (Q) equals 2,000 towels per week, we can find the AVC:

AVC = $8,000/2,000 = $4

Therefore, the average variable cost of production equals $4 per towel.

You Operate a Factory That Produces Beach Towels