Question

What is the minimum AVC​ (Average Variable​ Cost) for the company with total cost shown​ below:

Quantity	0	1	2	3	4	5	6
Total Cost	​$1	​$4	​$6	​$12	​$20	​$30	​$42

A.

​$3.00

B.

None of the above

C.

​$2.50

D.

​$2.26

E.

​$3.66

Answer 1

We know that, Total Cost (TC) is the sum total of Variable Cost (VC) and Fixed Cost (FC). Hence,

TC = VC + FC

According to the given data, when Quantity (Q) is 0, then Total Cost is $1.

When Q = 0, then Variable Cost (VC) is also 0. Hence,

TC = VC + FC

or, $1 = 0 + FC

or, FC = $1

Hence, Fixed Cost is $1 for all values of Q.

Now, the AVC or Average Variable Cost is defined as,

AVC = VC/Q

Now we will fill the following table.

Q	TC($)	FC($)	VC = TC - FC($)	AVC = VC/Q($)
0	1	1	0	0
1	4	1	3	3
2	6	1	5	2.5
3	12	1	11	3.66
4	20	1	19	4.75
5	30	1	29	5.8
6	42	1	41	6.83

From the above table, we can see that the minimum value of AVC is $2.5.

We eliminate Options A, B, D and E as these does not match our result.

Hence, minimum value of AVC is $2.50. The correct answer is Option (C).

Hope the solution is clear to you my friend.