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
Which of the following is NOT a classification of E-Commerce?
The subject of the Study of Macro Economics is based on which principle?
Which of the following is NOT one of the scheduled public sector banks in India?
In September 2021,the Pension Fund Regulatory and Development Authority (PFRDA) increased the entry age for the National Pension System (NPS) from_______ to ______.
Which of the following institutions was set up in 1982 in order to streamline credit facilities to farmers at a national level?
