The average cost per unit at production level x is defined as C avg (x) = C(x)/x,

Question:

The average cost per unit at production level x is defined as C_avg(x) = C(x)/x, where C(x) is the cost of producing x units. Average cost is a measure of the efficiency of the production process.

Show that C_avg(x) is equal to the slope of the line through the origin and the point (x,C(x)) on the graph of y = C(x). Using this interpretation, determine whether average cost or marginal cost is greater at points A, B, C, D in Figure 17.

C A B C Production level D X