What is the relationship between Average Total Cost (ATC), Average Fixed Cost (AFC), and Average Variable Costs (AVC)?Question 16Select one:a.ATC = AFC / AVCb.ATC = AFC + AVCc.ATC = AFC * AVCd.ATC = AFC - AVC
Question
What is the relationship between Average Total Cost (ATC), Average Fixed Cost (AFC), and Average Variable Costs (AVC)?Question 16Select one:a.ATC = AFC / AVCb.ATC = AFC + AVCc.ATC = AFC * AVCd.ATC = AFC - AVC
Solution
The correct answer is b. ATC = AFC + AVC. This is because the Average Total Cost (ATC) is the sum of the Average Fixed Cost (AFC) and the Average Variable Costs (AVC). Fixed costs are costs that do not change with the level of output, such as rent or salaries. Variable costs are costs that change with the level of output, such as raw materials or direct labor. Therefore, the total cost of producing a certain number of units is the sum of the fixed and variable costs, divided by the number of units produced.
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