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Average Total Cost Definition

To understand and know about the cost structure is an essential part of production planning, pricing decisions and budgeting in a company. With that, you need to know about calculation and average total cost definition. Here is what you need to know about this kind of economics assignments.

Short History of Average Total Cost

When production managers, economists, and others refer to average total costs, they’re referring to unit cost, which includes all variable and fixed costs. You need to know the definition of average total cost because it is critical in making the decision in pricing. Total costs are made up of fixed costs that are required for the production, but they do not change the output as well as the variable costs that decrease or increase as the output decreases or increases.

For instance, if the company manufactures glass screens, electrical boards, computer screens and plastic casings, then it is the variable costs. The facility costs they are made in as well as equipment used in assembling those monitors are the fixed costs.

General Information about Average Total Cost

By the time that you know about the definition of average total cost, it is the time to learn about the formula. The average total costs are referred sometimes as per unit total cost because it is being calculated by taking the production total cost and divide it by unit number produced. When it comes to the variable form, it is like this:

  • TC / Q equals ATC
  • Where the fixed costs plus the variable costs (quantity) equals TC

average total cost formula

Explanation on Average Total Cost Curve

The average total cost curve is a curve that represents the relation between the average total cost that is incurred by an agency in the short-run product of services or goods as well as quantity produced. It is constructed in capturing the relationship between the level of output and average total cost that hold other variables like resource prices, technology and constant.

There you have the average total cost curve, for the meantime, let’s take a look at average total cost is equal to:

  • Average total cost is the sum of average fixed costs and average variable cost. You can say that the average total cost is equal to total cost divided by a number of the units produced.

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