Choose the correct options with reference to short-run average costs.
(A) Average total cost = total cost/quantity of output
(B) Average total cost = average variable cost + average fixed cost
(C) Average variable cost = average total cost - average fixed cost
(D) Average fixed cost = average variable cost - average cost
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
(A) Average total cost = total cost / quantity of output — True. This is the basic definition of average total cost (ATC).
(B) Average total cost = average variable cost + average fixed cost — True. ATC is the sum of AVC and AFC.
(C) Average variable cost = average total cost − average fixed cost — True. Rearranging (B) gives AVC = ATC − AFC.
(D) Average fixed cost = average variable cost − average cost — False. The correct relation is AFC = ATC − AVC, not AVC − AC.