Total Cost per unit of output is called?
VerifiedAnswer: Average Cost
Explanation:
When we talk about the total cost per unit of output, we're referring to Average Cost. This is one of the most important concepts in economics that helps businesses understand how much it costs them to produce each individual unit of their product.
Average Cost is calculated by dividing the total cost of production by the total number of units produced. The formula is: Average Cost = Total Cost ÷ Total Output. For example, if a bakery spends ₹1000 to produce 100 cupcakes, the average cost per cupcake would be ₹10.
Understanding average cost is crucial for businesses because it helps them make smart pricing decisions. If the average cost to produce one unit is ₹10, the business knows they need to sell it for more than ₹10 to make a profit. This concept also helps companies determine the most efficient level of production.
Average cost typically changes as production levels change. When a company produces more units, it often benefits from economies of scale, which means the average cost per unit decreases. This happens because fixed costs (like rent, machinery, and salaries) get spread across more units, making each unit cheaper to produce on average.
