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Question

What is the relation between Average Variable Cost and Average Total Cost, if Total Fixed Cost is zero ?


Solution

We know that:

$$TC = TFC + TVC$$

Dividing both the sides by 'Q', we get

$$\dfrac{TC}{Q} = \dfrac{TFC}{Q} + \dfrac{TVC}{Q}$$

$$ATC = 0 + AVC$$    $$[\therefore TFC = 0]$$

Hence, $$ATC = AVC$$

Graphically, both the cost curves will intersect each other.

Economics

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