A company currently has total costs of \$4,096 when producing 128 units. If total fixed costs equal \$1,024, what is average variable cost?

• A. \$8
• B. \$24
• C. \$2,048
• D. \$3,072
• E. None of the above

Answer: (B)

Verified step by step guidance

1. First, understand that total costs (TC) are the sum of total fixed costs (TFC) and total variable costs (TVC). The formula is: TC = TFC + TVC.
2. Given that the total costs (TC) are \$4,096 and total fixed costs (TFC) are \$1,024, you can find the total variable costs (TVC) by rearranging the formula: TVC = TC - TFC.
3. Substitute the given values into the formula: TVC = \$4,096 - \$1,024.
4. Calculate the total variable costs (TVC) using the values from the previous step.
5. To find the average variable cost (AVC), use the formula: AVC = TVC / Q, where Q is the quantity of units produced. Substitute the calculated TVC and the given quantity of 128 units into this formula to find the AVC.