Q. If the average total cost is Rs. 54, Total fixed cost is Rs. 45000 and the quantity produced is 2500 units, find the average variable cost (in Rs) of the firm:
Answer: 36
Notes: The standard method of calculating average variable cost is to divide total variable cost by quantity, illustrated by this equation: Average variable cost = total variable cost/volume of output An alternative specification for average variable cost is found by subtracting average fixed cost from average. Total cost is: Average variable cost = Average total cost - Average fixed cost As per the question, Average total cost = 45000/2500 = 18 then Average variable cost = 54 - 18 = 36