Variable cost divided by quantity produced is
a. average total cost.
b. marginal cost.
c. profit.
d. None of the above is correct.
The correct answer is:
b. marginal cost.
Explanation:
Marginal cost (MC) is defined as the additional cost incurred when producing one more unit of a good or service. It is calculated using the formula:
[
MC = \frac{\Delta \text{Total Cost}}{\Delta \text{Quantity}}
]
However, when only variable costs are considered, marginal cost can be expressed as:
[
MC = \frac{\text{Variable Cost}}{\text{Quantity Produced}}
]
This means that marginal cost is derived from variable costs because fixed costs (such as rent or salaries) do not change with production levels. Since variable costs fluctuate depending on how much is produced, dividing the total variable cost by the number of units produced gives the cost of producing an additional unit, which is marginal cost.
Why Other Options Are Incorrect:
- Average Total Cost (ATC):
- ATC is the total cost per unit of output, calculated as:
[
ATC = \frac{\text{Total Cost}}{\text{Quantity}}
] - This includes both fixed and variable costs, not just variable costs alone.
- Profit:
- Profit is the difference between total revenue and total cost:
[
\text{Profit} = \text{Total Revenue} – \text{Total Cost}
] - Since profit depends on revenue and costs, it is not related to dividing variable costs by quantity.
- None of the Above:
- Since marginal cost correctly represents variable cost per unit of output, this option is incorrect.
Thus, the best answer is marginal cost because it measures how much the variable cost contributes to the cost of producing one more unit.