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CFA Level 1
Economics

Average Variable Cost Calculation

Medium Microeconomics Cost Of Production

In a competitive market, firms aim to maximize their profits by adjusting their level of production. Understanding the different costs involved in production is critical for firms to make optimal decisions. Consider a firm that is currently operating at a production level which yields a total cost of $20,000. The firm incurs fixed costs of $10,000 and variable costs of $10,000. If the firm increases its production from 1,000 to 1,200 units, what will the average variable cost (AVC) per unit be at this new production level?

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