Per unit cost functions
Average variable cost (AVC) is the variable cost per unit of output produced. It can be derived from the TVC.
AVC = TVC/Q
The AVC decreases initially and eventually rises because of diminishing returns to variable input. If the firms' production is nit these costs will not be incurred. They are affected by the per unit cost of each variable input in production (for example, hourly wage rates of workers), the productivity of inputs and the production technology available to the firm. Suppose, labour is the only variable input in production then TVC per output level (Q) equals wage rate (w) multiplied by the number of labourers used. Thus,
AVC = TVC/Q = wL/Q
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