The total variable cost per unit of output is the average variable cost. Fixed cost is costs that do not vary with output like the rent of a building and so on. Variable cost is a cost that varies with output, and that includes labor cost and so on.
Variable cost is a direct cost, and total variable cost should be divided by output to get an average variable cost. Are you looking for details? Manuals as average variable cost homework answers will surely help you
Example of average variable cost
Output is 1, and a total variable cost is 100$. Then the average variable cost is 100$. If an output is 4 and a total variable cost is $100, then the average variable cost is $25.If total variable cost is $640 and output is 8, then the average variable cost is $80.
Assume that labor cost for production is $10 per worker on an hour rate basis and material cost is $ 2 per unit.If the aim is to produce one unit per hour then only one worker is needed, and total variable cost is $ 12, and average variable cost is $12 per hour.If three brushes are produced in one hour, average variable cost drops to $ 5, 33 per hour. This shows that average variable cost would keep on dropping if production is increased with the same set of worker in an hour.
Average variable cost should decrease when additional cost of production takes place. Average variable cost along with price would give enough clues about whether a firm should close down or not.
Average variable cost, when shown on a graph model, uses a U curve, and it would have negative slopes initially, and then it would reach minimum value and would grow once again to reach a maximum value. The curve in the graph supports the law of diminishing returns.
The total variable cost would rise when a company decides to go for maximum production. The reason is that more labor is needed. This happens in labor-intensive companies, and many companies who are starting to turn into automotive mode may not increase their total variable cost.
Many car companies may have to increase their production due to unsurpassed demand for their new model, and they have to take in extra labor and do extra overtime work that can increase cost. The benefits that would happen to the company when total variable cost and average variable cost increases are always studied in detail before a final decision is taken.
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