Average Total Cost (ATC): It is also referred as the cost of a single unit, it includes the overall cost, that is the variable cost as well as the fixed cost. A firm should always maintain the price of a product above the ATC, otherwise it will result in loss for the firm. The formula for ATC is: Where, AFC is the average fixed cost. AVC is the average variable cost . ATC is the average total cost. Or, Where, is the average total cost. is the total cost. is the quantity. Variable cost: This cost is directly proportional to the level of output produced, it increases with the increase in output and vice versa. The formula to calculate variable cost is: Where, is the variable cost. is the total cost. is the fixed cost.

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Chapter 6, Problem 11P

To determine

Concept Introduction:

Average Total Cost (ATC): It is also referred as the cost of a single unit, it includes the overall cost, that is the variable cost as well as the fixed cost. A firm should always maintain the price of a product above the ATC, otherwise it will result in loss for the firm. The formula for ATC is:

Where,

AFC is the average fixed cost.

AVC is the average variable cost.

ATC is the average total cost.

Or,

Where,
is the average total cost.

is the total cost.

is the quantity.

Variable cost: This cost is directly proportional to the level of output produced, it increases with the increase in output and vice versa. The formula to calculate variable cost is:

Where,

is the variable cost.

is the total cost.

is the fixed cost.

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