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What does ATC,AVC,ATC,AVC, and AFCAFC represent and what are the formulas for each?
What does ATC,AVC,ATC,AVC, and AFCAFC represent and what are the formulas for each?
Expert Solution
Average total cost
The average total cost is calculated as:
- ATC=TCQATC=TCQ
It measures the total cost per unit of output produced.
Average variable cost
The average variable cost is calculated as:
- AVC=VCQAVC=VCQ
It measures the total variable incurred in producing one unit of output.
Average fixed cost
The average fixed cost is calculated as:
- AFC=FCQAFC=FCQ
It measures the fixed cost per unit of output produced.
Total Cost, Fixed Cost, and Variable Cost:
The fixed cost of production is that cost, which is not affected by the level of activity. The variable cost, on the other hand, is affected by the level of activity. It increases with an increase in the level of activity and decreases with an increase in the level of activity. When the variable cost and the fixed cost are added, we get the total cost.
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