Question
Find average variable cost (AVL) for the cost function $c(y)=y^2+1$
The correct answer is
AVC = $y$
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.
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Important Questions from Economics
- Absolute poverty and relative poverty are the types of:
- Hybrid method of accounting for price level changes is the mixture of combination of :
(i) Current Purchasing Power Method.
(ii) General Purchasing Power Method.
(iii) Current Cost Accounting Method.
(iv) First-in First-out Method. - The advantages of the cost concept is that, valuation of the asset does not depend on the __________.
- Who is the First Economist who pointed out that the pricing problem should be studied from the view point of time?
- The concept of perfect competition was introduced by __________.
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