Understanding the Cost Function
The total cost function, denoted as $c(y)$, represents the total expenses incurred in producing a certain quantity of output, $y$. This total cost is typically broken down into two components:
- Total Fixed Cost (TFC): Costs that do not change with the level of output. These costs are incurred even if the production is zero.
- Total Variable Cost (TVC): Costs that vary directly with the level of output. These costs are zero when production is zero.
The relationship is expressed as: $c(y) = TFC + TVC$
Identifying Fixed and Variable Costs
Given the cost function $c(y) = y^2 + 1$:
- The constant term, $1$, represents the Total Fixed Cost (TFC). So, $TFC = 1$.
- The term that depends on the quantity $y$, which is $y^2$, represents the Total Variable Cost (TVC). So, $TVC = y^2$.
Calculating Average Variable Cost (AVC)
Average Variable Cost (AVC) is calculated by dividing the Total Variable Cost (TVC) by the quantity of output ($y$). The formula is:
$AVC = \frac{TVC}{y}$Substituting the TVC identified from the cost function:
$AVC = \frac{y^2}{y}$Simplifying the expression:
$AVC = y$Therefore, the Average Variable Cost (AVC) for the given cost function is $y$. This matches option 4.
Important Questions from Economics
RBI The sale of a bond by the United States to individuals or institutions results in a ______.
I. Shortage of stock
II. Shortage in money supply
In which city is the head office of the Insurance Regulatory and Development Authority of India (IRDAI) situated?
Which of the following statements are CORRECT for welfare economics?
A. Any competitive equilibrium leads to a Pareto efficient allocation of resources
B. Competitive equilibrium does not lead to Pareto efficient allocation of resources
C. Any efficient allocation can be attained by a competitive equilibrium given the market mechanism leading to redistribution
D. There will be no Pareto efficient allocation of resources in the society
Choose the correct answer from the options given below:
The persistent and appreciable full in level of prices and when the rate of change of price index is negative it is called as
Hindustan Fluorocarbons Ltd (HFL) is subsidiary company of _______.
