A Level Economics AQA Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the A Level Economics AQA Exam with our interactive quiz. Test your knowledge with multiple choice questions and detailed explanations. Equip yourself with the tools needed for success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What does average cost represent?

Total costs × output
Total costs / output
Total revenue - total costs
Output / total costs

The correct answer is: Total costs / output

Average cost represents the total costs of production divided by the quantity of output produced. This metric allows businesses to understand the cost incurred per unit of output, which is essential for pricing strategies, profitability analysis, and efficiency assessments. By calculating the average cost, a firm can determine how changes in output levels affect overall costs and make informed decisions regarding production levels. The choice aligns with the fundamental economic concept that average cost provides insight into how costs behave at different scales of production. Higher average costs may indicate inefficiencies or diminishing returns, while lower average costs can suggest economies of scale. This understanding is crucial for firms aiming to optimize their operations and remain competitive in the market.