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.