In order to derive the mean value of the total costs, the average costs are calculated by dividing the total costs by the output produced by a firm. The total fixed cost is the initial expenditure of the firm and it is not related to the output produced, the total variable costs vary with the level of output as it includes the costs of variable inputs used in production which are directly related to the output produced. Because total variable cost is a variable of the total cost as well, total costs are related to output produced and that is why the average cost is divided by output.