What is the average variable cost at 24 units of output?

Question

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three produce 20 units, and four produce 24 units. If the cost is $12 per laborer and fixed costs are $100.

 

a) $100.

b) $37.

c) $2.

d) $6.17.

e) $24.

Answer 1

The answer is c) $2.

Here's how:

4 laborers produce 24 units of output.

Total Variable Cost = 4 × $12 = $48

Average Variable Cost = $48 ÷ 24 = $2 per unit

Note: Fixed costs ($100) are excluded from variable cost calculations — they don't change with output.