Illustrate the per unit cost graph. You must include average total cost, average fixed cost, average...

Illustrate the per unit cost graph. You must include average total cost, average fixed cost, average variable cost and marginal cost.

Expert Solution

The cost per unit is derived from the variable costs and fixed costs incurred to produce goods, divided by the total number of units produced. Variable costs, such as direct inputs, vary in proportion to the number of units produced. Fixed costs, such as rent of the building, should remain unchanged no matter how many units are produced.

So the cost per unit calculation is:

PER UNIT COST=(TOTAL FIXED COST+TOTAL VARIABLE COST) / NUMBER OF UNITS PRODUCED

As the number of units produced increases, the cost per unit should decline.This is primarily because the total fixed costs will be spread over a larger number of units. Therefore, the cost per unit is not constant.

Average total cost is per unit total cost, calculated by dividing the total cost(sum of variable and fixed cost) by the number of units produced. This is usually a U-shaped curve. Average variable cost is per unit variable cost incurred, calculated by dividing total variable cost with the total number of units produced. This is also usually a U-shaped curve. Average fixed cost is per unit total fixed cost incurred, calculated by dividing total fixed cost with the total number of units produced. This is usually shaped as a rectangular hyperbola.

ATC=AVC+AFC

Rahul Sunny answered 2 years ago

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