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| 1. |
What is meant by averge variable cost (AVC) ? Why is AVC curve U-shaped ? |
| Answer» <html><body><p></p>Solution :The average <a href="https://interviewquestions.tuteehub.com/tag/variable-1442996" style="font-weight:bold;" target="_blank" title="Click to know more about VARIABLE">VARIABLE</a> cost (AVC) is the <a href="https://interviewquestions.tuteehub.com/tag/total-711110" style="font-weight:bold;" target="_blank" title="Click to know more about TOTAL">TOTAL</a> variable cost per unit of output. This is found by dividing total variable cost (TVC) by total output (Q). Total variable cost (TVC) is all the costs that vary with output, such as materials and labor.The average cost is U-shaped because an increase in output increases the <a href="https://interviewquestions.tuteehub.com/tag/returns-1187977" style="font-weight:bold;" target="_blank" title="Click to know more about RETURNS">RETURNS</a> and reduces the total cost. As the curve continues to <a href="https://interviewquestions.tuteehub.com/tag/slope-15649" style="font-weight:bold;" target="_blank" title="Click to know more about SLOPE">SLOPE</a> downwards, it <a href="https://interviewquestions.tuteehub.com/tag/enters-972302" style="font-weight:bold;" target="_blank" title="Click to know more about ENTERS">ENTERS</a> a phase of constant returns where the returns and output are at their optimum level. .</body></html> | |