Define and explain how to calculate average total costs (ATC)

Average total cost is the cost per unit produced, i.e., how much a firm must spend in total to produce one unit of output. It is calculated as total cost of production divided by the quantity of output. If a firm's production involves fixed costs, then we have:

• total cost = fixed costs + variable cost per unit * quantity of output

Then average total cost is:

• average total cost = total cost / quantity of output
• average total cost = fixed costs / quantity of output + variable cost per unit
• average total cost = average fixed costs + variable cost per unit